From Chief Executive:
Now in its third year, the CEO wealth creation index developed by Chief Executive magazine, Applied Finance Group and Great Numbers! attempts to identify those business leaders who have performed best in creating true economic value—as opposed to mere accounting value—as measured by GAAP metrics. Creating value is, after all, why CEOs do what they do. The WCI leans heavily on the concept of economic margin (EM). (EM measures the degree to which a company makes money in excess of its risk-adjusted cost of capital.) While there is no single metric that is perfect, EM comes close, in that it isn't dependent on share price in assessing management's impact on value creation. (The rankings do not include REITs among the S&P 500 and only assess companies whose CEO has been in the job for at least three years in order to get a fair appraisal of CEO actions under varying conditions. For more details on methodology, see "Ranking CEO Wealth Creation".)
The past 12 months have not been an easy time to grow—or for companies with high levels of EM to maintain them. The more profitable a company is, the more difficult it is to maintain high levels of profitability when competitors step up and target market leaders. Some companies find that the "easy money"—high margins on a product or market—ultimately dries up. Also, if a business model is successful and a company is making healthy profits, it becomes a target....MUCH MORE
HT: Marginal Revolution
