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Corporate performance evaluation has evolved from the 1960s focus on ROE to the current variations of economic profit that measure impact on shareholder value. Both ROE and EP are business metrics, tools used to measure the performance of the business. Focusing on EP instead of ROE decreases the likelihood of destructive behavior by managers. End goal of EP exercises is consistent with traditional focus of maximizing shareholder value. All economic profit measures deduct charge for use of equity capital from accounting's typical net income or profit after tax to reflect the opportunity cost associated with equity investments.
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Source: Best Practices in Shareholder Value, Performance Management PowerPoint Slides: Corporate Performance Measurement PowerPoint (PPT) Presentation, Documents & Files
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