What are some of the limitations of utilizing ROI, residual income, and EVA to measure the performance of investment centers?
All three measure focus on short-term financial performance. In addition:
ROI: A company's overemphasis on ROI may cause managers to react with business decisions that favor their particular area of responsibility's ROI performance at the expense of companywide profits or the long-term success of other investment centers.
Residual Income: For residual income figures to be comparable, all investment centers must have equal access to resources and similar asset investment bases.
EVA: Many factors affect EVA. Therefore, EVA evaluation will be more meaningful if the current EVA is compared to EVAs from previous periods, target EVAs, and EVAs from other investment centers.
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