Cons

Pros

EVA

· Sensitive to the firm’s depreciation policy.

· Presents a better and true picture of the company, as covering both operating &capital costs.

· A monitoring device for gauging the financial performance of a business (especially demand capital < supply of capital when the company is the relatively incentive to changes in access to cash).

· Different depreciation policies can result in large variations in the value of the measure.

· Without taking into account the impact of depreciation on cash availability.

CVA

· No accounting adjustments are required.

· Since depreciation is added back, the measure will not influence by the firm’s depreciation policy.

· Problem of different depreciation policies in EVA can be solved by including an accounting adjustment.

· The removal of accruals and depreciation may lose important information required by the market when evaluating an enterprise.

· The process of removing the effects of accounting accruals is also complex.

· CVA values may provide conflicting signals.