Excess-Profit Decomposition : Economic Value Added and Systemic Value Added (Scomposizione di Sovraprofitti: Economic Value Added e Valore Aggiunto Sistemico)

The Economic Value Added formally translates the theoretical notion of excess profit (also known as residual income). Its use is so firmly entrenched in applied corporate finance and management accounting that its name is often used as a noun for denoting the concept of excess profit itself. This paper investigates the conceptual properties of such a notion and, in particular, it studies the relations between the excess profit generated in a period and the excess profit generated in the following period, showing that the classical approach forgets the past story of the project and the evolution of the capital invested. On the basis of this analysis, a new approach to residual income is offered, called Systemic Value Added (SVA). The latter takes account of the dynamic system governing the evolution of the capital invested, and is coherently additive in that the uncompounded sum of the SVAs leads to the Net Final Value. Interesting relations between the classical approach and the new approach are provided, and a final conventionalist position is endorsed: the excess profit is not an unambiguous concept and the choice between either approaches depends on the pieces of information one is willing to retrieve.[An English translation of sections 3 and 4 is provided at the end of the original paper]