Wealth Creation: United States vs. World

In our article Has GM Earned A Bailout? and many others , we incorporate the use of AFG's Economic Margin because of it's powerful insights on measuring shareholder value and calculating intrinsic values. As the demand for AFG's unique valuation and corporate performance insights has grown globally, so has the research.

Using data from AFG's Research platform we wanted to compare the wealth creation for companies in the United States vs. the World. The Wealth Creation Chart below displays the Economic Margins for the United states vs. the world going back to the 1990s.

Wealth Creation: United States vs. World

In the chart, you will notice that throughout the 1990s, the US EM's and growth have exceeded the World. Since 2002, the World EM's have improved relative to the US, while its growth has equaled the US. This is a clear indication as to why there has been a growing interest in global markets over the past decade.

Economic Margin:

Economic Margin (EM) EM = (Cash Flow - Capital Charge)/ Productive Capital. In simple terms, EM seeks to measure the ability for a company to make money in excess of a risk-adjusted cost of capital. A positive EM means a firm is earning a profit above their cost of capital while a negative EM indicates a firm is earning less than their cost of capital.

Investment Insights from your peers, Professional Investors - The Applied Finance Group would like to invite professional investors to join AFG’s Market Forecast Project so you can better understand what your peers currently think about the market and cultivate the “wisdom of Crowds” into actionable investment ideas and themes.
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