Merits of economic value added (EVA):
- Cash not accounting based measure therefore less distorted for performance measurement.
- Consistent or goal congruence with profit maximisation e.g. an enforced measure of profitability.
- Different interest charges (cost of capital) can be applied to divisions e.g. high inherent risk within different industries can have higher cost of capitals applied.
- Forces managers to consider the cost of financing new investment and to be efficient when managing working capital e.g. minimisation of inventory and excessive cash balances.