ECONOMIC PROFIT
The Economic Profit (EP) measure, promoted by McKinsey & Co., has found application mainly in the measurement of financial performance. EP has a strong relationship to discounted cash flow methods. Its basic elements resemble those of the EVA approach, although the necessary conversions from the accounting data are far less intensive. In comparing EVA to EP, there’s a strong similarity in the basic calculation, with slight differences in the amount of conversions required, as mentioned, and in the definition of the capital ratio.