The Gearing Adjustment: An Economic Profit Perspective

Article Abstract:

When evaluating profits, economic profit can be compared with a current-cost measure of profit. This comparison helps one decide if the investment return is optimal or close to optimal. But if this comparison is to be used in external financial statements, then the sources of finance must be allowed for. The gearing adjustment allows for financing costs in the estimation of profits. This analytical technique is useful in comparing profits with the real return to equity finance.

Methods, Measurement, Profit, Accounting and auditing, Profits, Accounting, Investments, Industrial management

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A Note on the Marginal Cost of Debt Capital

Article Abstract:

Douglas Vickers responds to a criticism by Professors Draper and Findlay concerning the Vickers model of the firm. The argument centers around suggestions that Vickers has confused the concepts of average and marginal costs. Vickers maintains that the criticism is vacuous. He proceeds to clarify the point of confusion. He maintains that any problems that exist are mainly between the model and reality, rather than any internal inconsistencies in the model.

Criticism and interpretation, Microeconomics

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Is beta dead or alive?

Article Abstract:

The debate about whether beta is dead or alive is examined, using empirical research methods. It is shown that market frictions are not adequately taken account of in previous studies, but that if they are, beta is alive.

Research, Markets (Economics), Statistics, Statistics (Data), Average, Mean (Statistics)

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