Ratio

Essay specific features

 

Issue:

Business

 

Written by:

Floyd M

 

Date added:

February 22, 2015

 

Level:

University

 

Grade:

A

 

No of pages / words:

2 / 345

 

Was viewed:

5496 times

 

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Essay content:

Such a metric is useful for investors who wish to determine how well a company has produced value for its investors, and it can be compared against the company's peers for a quick analysis of how well the company is operating in its industry. Economic profit can be calculated by taking a company's net after-tax operating profit and subtracting from it the product of the company's invested capital multiplied by its percentage cost of capital...
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For example, if a fictional firm, Cory's Tequila Company (CTC), has 2005 net after-tax operating profits of $200,000 and invested capital of $2 million at an average cost of 8.5%, then CTC's economic profit would be computed as $200,000 - ($2 million x 8.5%) = $30,000. This $30,000 represents an amount equal to 1...
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