As a CFO, you are evaluating the performance of three divisions of your company using two measures
Fantastic news! We've Found the answer you've been seeking!
Question:
As a CFO, you are evaluating the performance of three divisions of your company using two measures Return on Investment (ROI; %) and Economic Value Added (EVA; $). Note that ROI is measured by dividing Net Income by the total capital employed, and is similar to the performance measure of EPS as both ROI and EPS use Net Income.
Explain the difference between ROI and EVA as a performance measure, other than their units (% vs. $).
If in a given year a division has a positive ROI but a negative EVA, what would that mean? Explain specifically why this would happen with respect to the return (%; e.g., ROI) and cost of capital (%) of the division.
Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
Posted Date: