Question 11.RQ.4: generating a particular level of profits or achieving a part...

Financial Management for Decision Makers

generating a particular level of profits or achieving a particular market share without specifying the level of capital invested can help create such a problem. EVA $^ {\circledR}$ can help avoid the problem by focusing on the need to obtain a profitable return on capital invested.

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If businesses are overcapitalised it is probably because insufficient attention is given to the amount of capital that is required. Management incentive schemes that are geared towards generating a particular level of profits or achieving a particular market share without specifying the level of capital invested can help create such a problem. EVA $^ {\circledR}$ can help avoid the problem by focusing on the need to obtain a profitable return on capital invested.

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