As It Relies On Corporate Information Then This Might Not Be Completely

As it relies on corporate information then this might not be completely accurate and a fair reflection of the performance. There is confusion when it comes to which figures to use. For example, which profit figure should be used?
Another draw back of this performance measure is that it does not draw on a benchmark of required return. There is no 'theory' that states an advisable figure for acceptable return. If the ROCE of a company is, say, 10%, there is no literature that states if that figure is too low or too high. This will mean that the usefulness of the ROCE figure is dependent on the expectations of the investor. An investor might think 10% is acceptable and invest or he might think that it is too low and invest somewhere else.
Another model that can be used to measure performance is that of Economic value Added (EVA). This model was derived by Stern Stewart and has been widely used since the early 1990's. The value added is calculated by taking the profit after tax and subtracting the capital employed after a charge has been calculated. This charge will be calculated using the WACC. Using the WACC as a charge has its advantages as it is related to the company. It has been worked out using company information. It is not just some figure that has been plucked out of thin air.
Shareholder value does not require a benchmark figure. If a company's EVA value is positive then the company is creating shareholder value and if the EVA figure is negative then the company is losing shareholder value. This also has benefits when using this model as a comparison between companies.
Many authors have argued whether or not shareholder value is of particular importance. On such author was Richards (1997). He argued that shareholder value was important, as society owns the companies and generating shareholder value will benefit society. However, he does warn that the wealth is sometimes not spread equally.
One disadvantage of EVA is that the figures being used are dependent on accounting rules. This will mean that EVA figures between companies will be slightly distorted. Many authors including McIntyre (1999) raised this issue. Also, Amernic, Losell and Craig (2000) argue that 'better' and 'more accurate' EVA components need to be used to increase the reliability of the measure.
The data is based on historical data. This could lower the reliability of the information and therefore the EVA value generated. Also, due to the fact it looks at historical data it is measuring past performance. This means that future performance is not being looked at. This will not be useful information for potential investors. They will be more concerned about how their money will be affected in future rather than how it could have been affected if invested earlier. However, looking at the past does create a benchmark to future performance.
The model can be very complex.