The firm's accounting profitability, ability to create shareholder value, and ability to generate economic value tend to be Correlated.
Accounting profit, also known as accounting profit or financial profit, is net income obtained after deducting total revenue from all dollar costs. In essence, it displays how much money a company has remaining after paying its stated operating expenses.
Shareholder value is the monetary benefit shareholders of a firm receive in exchange for their ownership of its stock. When a corporation generates a return on invested capital (ROIC) higher than its weighted average cost of capital, this raises shareholder value (WACC). Simply said, value is produced for shareholders when a company grows its earnings.
Creating Economic Value: The company must keep a balance between the unit cost of "production" and the consumer's willingness to pay for the product in order to create economic value. The company must establish a price (P) above unit cost (C) in order to capture the economic value and make a supra-normal profit.
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