Limitations of economic value added, Strategic Management

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Limitations of economic value added (EVA)

- Not well understood by users of accounts.

- Divisions of different sizes cannot be relatively compared.

Similarities of EVA and RI

Both are absolute rather than relative measures.
Both deduct a finance charge for the cost of capital used for a division.
Both exclude interest payments in arriving at profit due to using a notional interest charge instead e.g. the cost of capital.

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