Economic indicators of value creation (See Chapter 19 of the Vernimmen) Economic indicators emerged with the realisation that profitability (see accounting criteria of value creation) per se cannot fully measure value because they do not factor in risks. To measure value, returns must also be compared with the cost of capital employed. Using the weighted average cost of capital, it is possible to assess whether value has been created (i.e. when return on capital employed is higher than the cost of capital employed) or destroyed (i.e. return on capital employed is lower than the cost of capital employed). Also the absolute amount of value creation is used under the name of economic value added. The best indicator, though, is the NPV (see net present value), with the problem of calculating it over several periods. These indicators measure the past year’s performance. Economic indicators of value creation (See Chapter 19 of the Vernimmen) Economic indicators emerged with the realisation that profitability (see accounting criteria of value creation) per se cannot fully measure value because they do not factor in risks. To measure value, returns must also be compared with the cost of capital employed. Using the weighted average cost of capital, it is possible to assess whether value has been created (i.e. when return on capital employed is higher than the cost of capital employed) or destroyed (i.e. return on capital employed is lower than the cost of capital employed). Also the absolute amount of value creation is used under the name of economic value added. The best indicator, though, is the NPV (see net present value), with the problem of calculating it over several periods. These indicators measure the past year’s performance. See all terms in the dictionary of finance To know more about it, look at what we have already written on this subject :

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Definitions of terms begining with the same letter as "Economic indicators of value creation" :

EASDAQ EBIT multiple EBIT, Earnings Before Interest and Tax EBIT, Earnings Before Interest and Taxes EBITDA margin EBITDA multiple EBITDA, Earnings before interest, tax, depreciation and amortisation EBITDAR EBITDAR, Earnings before interest, taxes, depreciation, amortisation and rent EGM EMTN, Euro MTN ENPV EONIA, Euro Overnight Index Average EPOS EPS ESOP ETF EURIBOR, Euribor EVA EVA model EXtensible Business Reporting Language Earn-out clause Earnings Earnings Before Interest and Taxes Earnings before interest, taxes, depreciation and amortisation Earnings per share, EPS Earnings retention ratio Earnings yield Economic analysis Economic indicators of value creation Economic profit Economic rent Economic risk Economic value added, EVA, EVA Model Economy of scale

Efficient frontier Efficient market Efficient market hypothesis Efficient portfolio Electronic bill of exchange Electronic promissory note Embedded Value Employee stock ownership program, ESOP Employee-shareholders Enhancement Enterprise value Enterprise value multiples Equalisation tax Equilibrium value Equity Equity affiliate Equity beta Equity capital multiples Equity credit Equity cycle Equity in drag Equity kicker Equity line Equity method Equity premium puzzle Equity ratio Equity risk premium Equity sweetener Equity warrant Equity-for-debt swap Equity-linked securities Equivalent annual cost method Escrow account Eurimean Euro MTN

Euro Overnight Index Average Euro-NM Eurobond Euronext European Interbank Offered Rate European option European-style option Eurozone Public Offering of Securities Event-study analysis Exceptional items Exchange ratio Exchange risk Exchange traded fund Exchangeable bonds Exclusive negotiations Exercise date Exercise period Exit clause Expanded net present value, ENPV Expected equity risk premium Expected outcome Expected return Expected return of a market portfolio Expected return on assets – pensions Expenses Expert systems Explicit forecast period Export credit Expropriation effect Extended trade-off model External capital External projects Extraordinary general meeting of shareholders, EGM Extraordinary items