What is the difference between economic value added and market value added?
Stern Stewart & Co that attempts to measure the true economic profit produced by a company. It is frequently also referred to as “economic profit”, and provides a measurement of a company’s economic success (or failure) over a period of time. Such a metric is useful for investors who wish to determine how well a company has produced value for its investors, and it can be compared against the company’s peers for a quick analysis of how well the company is operating in its industry. Economic profit can be calculated by taking a company’s net after-tax operating profit and subtracting from it the product of the company’s invested capital multiplied by its percentage cost of capital. For example, if a fictional firm, Cory’s Tequila Company (CTC), has 2005 net after-tax operating profits of $200,000 and invested capital of $2 million at an average cost of 8.5%, then CTC’s economic profit would be computed as $200,000 – ($2 million x 8.5%) = $30,000. This $30,000 represents an amount equal t
