COST ACCOUNTING
PERFORMANCE MEASUREMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Management targets are in accordance with shareholder decisions
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More attention to capital structure policy
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Be able to identify investments that maximize returns (ROI)
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Able to identify projects that can increase the value of the company
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Pay more attention to consumer satisfaction
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Detailed explanation-1: -Benefits of Economic Value Added (EVA) Analysis EVA helps companies to make more strategic decisions, as well as to identify areas that need improvement. By evaluating a company’s economic performance, it can be easier to identify areas where resources need to be allocated in order to maximize value.
Detailed explanation-2: -Disadvantages of EVA the adjustments to profits and capital can become cumbersome, especially if performed every year. estimating the WACC can be difficult. While many organisations use models such as the CAPM, this is not a universally accepted method of determining the cost of equity.
Detailed explanation-3: -EVA is the incremental difference in the rate of return (RoR) over a company’s cost of capital. Essentially, it is used to measure the value a company generates from funds invested in it. If a company’s EVA is negative, it means the company is not generating value from the funds invested into the business.
Detailed explanation-4: -If a company’s EVA is negative, it means that the company is not producing value from the investment in the business. It is the one of the disadvantage of the EVA that it fails to shows that how the value is created by the company.