Chapter 4 Measuring Corporate Performance

3 Primary Ways to Measure Corporate Performances

1. Market Value Added

= Market capitalization – Book value of Equity
*Market capitalization = Share price * Share outstanding

2. Economic Value Added

= Operating Income – (Cost of capital * Total capitalization)
*Operating income = Net income + after-tax interest
*Cost of capital = min. acceptable rate of return on capital investment
*Total capitalization = Total long-term capital = Equity + Bonds + Other long-term capital
3. Book Rates of Return
*Return on Capital = after-tax operating income / total capitalization
*Return