level increases, net income could be overstated (or understated, in the event of price-level…
- March 08, 2021/ Questions
level increases, net income could be overstated (or understated, in the event of price-level decreases) and the investment base could be understated (or overstated). Managers who keep and use older assets can report much higher ROIs than managers using new assets. For EVA, this situation exists for the income measure but not for the asset measure because EVA focuses on the market value of capital employed. Th e third limitation of these measures is a single, potentially critical problem: they direct attention to how well an investment center performed in isolation rather than relative to companywide objectives.