Page 26 - Manac Costing Test 2 class slides - 3. Performance Measurement

PERFORMANCE MEASUREMENT

Advantages of EVA

• EVA achieves goal congruence (as the interests of the
company as a whole are considered).

• Non-financial factors (e.g. competitiveness, productivity,

quality, etc) should be incorporated in performance measures
in order to mitigate the short-term orientation of managers.

• EVA adjusts for distortions introduced by generally accepted
accounting principles into the divisional performance measure

to measure economic performance (the starting point though,
is the accounting profit based on historic costs and not future

cash flows).

• Managers are encouraged to ‘think” in the same way as
shareholders: EVA actively encourages increasing

shareholders’ wealth.

• Under-utilised assets are identified.

• Puts emphasis on the achievement of long-term goals and

shows the benefits of research and development expenditure,
training and marketing costs.

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