OVERVIEW

This chapter describes and analyzes a series of parameters that have been proposed for measuring a firm's "value creation" for its shareholders. The parameters ^[2] analyzed are

1. EVA (economic value added), which is ^[3] earnings before interest less the firm's book value multiplied by the average cost of capital

2. EP (economic profit), ^[4] which is the book profit less the equity's book value multiplied by the required return to equity

3. MVA (market value added) seeks to measure a firm's value creation, which is understood as the difference between the market value of the firm's equity and the equity's book value (or initial investment)

4. CVA (cash value added), which is ^[5] earnings before interest plus amortization less economic depreciation less the cost of capital employed

5. CFROI (cash flow return on investment) is the internal return on the investment unadjusted for inflation

6. TSR (total shareholder return) is the shareholder return, which is composed of the dividends paid and the equity's appreciation; TBR (total business return) is also the (hypothetical) shareholder return in unlisted companies and in corporate divisions

Many firms (Coca-Cola, Bank of America, Monsanto, among others) use EVA , EP or CVA, instead of the book...