Framework for Assessing Economic Profit in Corporations PPT

This PPT slide, part of the 106-slide Corporate Performance Measurement PowerPoint presentation, presents a detailed framework for understanding Economic Profit (EP) as a key metric in corporate performance measurement. It outlines how EP is derived from various financial components, emphasizing its role in assessing a company's value creation or destruction. The central focus is on the calculation of EP, which starts with Net Operating Profit After Tax (NOPAT). This figure is adjusted by subtracting a charge for capital employed, which is calculated using the Weighted Average Cost of Capital (WACC).

The slide also breaks down the components contributing to NOPAT, including Operating Profit, Effective Taxation, Gross Profit, Advertising & Promotion (A&P), and Overheads. Each of these elements plays a crucial role in determining the overall profitability of the company. The visual structure indicates that EP is not only straightforward, but also flexible, as it can be applied across different products, segments, and regions, making it a versatile tool for performance analysis.

The benefits of using Economic Profit are highlighted, such as its ease of use based on historical accounting records and its independence from Generally Accepted Accounting Principles (GAAP). This flexibility allows organizations to project future performance and assess value creation over time. The slide concludes with key insights on the implications of positive Economic Profits, indicating that sustained profitability leads to value creation, higher market prices per share, and growth potential. This information is vital for executives looking to enhance strategic decision-making and performance evaluation within their organizations.

This slide is part of the Corporate Performance Measurement PowerPoint presentation.

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