Page 27 - Manac Costing Test 2 class slides - 3. Performance Measurement
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PERFORMANCE MEASUREMENT
Disadvantages of EVA
• The EVA can only provide a rough approximation of
economic profit as the starting point for calculating EVA
is the conventional accounting profits, based on historic
costs and not future cash flows.
• The EVA calculation involves making a number of
adjustments to the profitability measure in order to
convert the historic accounting data and thereby
approximate economic profit and asset values.
• The use of estimates of economic profit in evaluating
performance results in lack of precision and objectivity.
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