It is used to evaluate the margins from an economic perspective and it goes beyond the account-based analysis. It clears the distortion which was made due to structure of capital, life of the asset, off-balance sheet items etc.
Here the capital charge is the return on capital.
EM = Operating Cash Flow – Capital Charge
Invested Capital
Operating cash flow (-) capital charge is the economic profit by which managers can create value. Here operating cash flows also include the depreciation and amortization, unlike EBITDA.
Economic margin is basically a link between EVA (Economic Value Added) and CFROI (Cash flow return on Investment).
Browse the definition and meaning of more terms similar to Economic Margin EM. The Management Dictionary covers over 7000 business concepts from 6 categories. This definition and concept has been researched & authored by our Business Concepts Team members.
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