IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/8935.html
   My bibliography  Save this paper

Scomposizione di sovraprofitti: Economic Value Added e Valore Aggiunto Sistemico
[Excess-profit decomposition: Economic Value Added and Systemic Value Added]

Author

Listed:
  • Magni, Carlo Alberto

Abstract

The Economic Value Added formally translates the theoretical notion of excess profit (also known as residual income). Its use is so firmly entrenched in applied corporate finance and management accounting that its name is often used as a noun for denoting the concept of excess profit itself. This paper investigates the conceptual properties of such a notion and, in particular, it studies the relations between the excess profit generated in a period and the excess profit generated in the following period, showing that the classical approach forgets the past story of the project and the evolution of the capital invested. On the basis of this analysis, a new approach to residual income is offered, called Systemic Value Added (SVA). The latter takes account of the dynamic system governing the evolution of the capital invested, and is coherently additive in that the uncompounded sum of the SVAs leads to the Net Final Value. Interesting relations between the classical approach and the new approach are provided, and a final conventionalist position is endorsed: the excess profit is not an unambiguous concept and the choice between either approaches depends on the pieces of information one is willing to retrieve.

Suggested Citation

  • Magni, Carlo Alberto, 2000. "Scomposizione di sovraprofitti: Economic Value Added e Valore Aggiunto Sistemico
    [Excess-profit decomposition: Economic Value Added and Systemic Value Added]
    ," MPRA Paper 8935, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8935
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/8935/1/MPRA_paper_8935.pdf
    File Function: original version
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Magni, Carlo Alberto, 2009. "Splitting up value: A critical review of residual income theories," European Journal of Operational Research, Elsevier, vol. 198(1), pages 1-22, October.
    2. Magni, Carlo Alberto, 2000. "Systemic Value Added, Residual Income and Decomposition of a Cash Flow Stream," MPRA Paper 5900, University Library of Munich, Germany.
    3. Carlo Alberto Magni, 2009. "Opportunity Cost, Excess Profit, and Counterfactual Conditionals," Frontiers in Finance and Economics, SKEMA Business School, vol. 6(1), pages 118-154, April.

    More about this item

    Keywords

    Excess profit; residual income; net present (final) value; decomposition; Economic Value Added; Systemic Value Added;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8935. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.