Explain the difference between roi and eva

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Reference no: EM133496135

Case: 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.

Question 1: Explain the difference between ROI and EVA as a performance measure, other than their units (% vs. $).

Question 2: 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.

Reference no: EM133496135

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