Canadian management consultant and Managing Partner of Arche Value Management, Mack Ferguson, has produced a performance list of the largest 35 companies (based upon invested capital) that are traded on the Jamaica, Trinidad and Tobago, and Barbados stock exchanges. The companies are evaluated on the basis of 2025 standardised economic profit, with the US Dollar has been used as a common basis of performance analysis.
Standardised economic profit is simply economic profit produced per unit of invested capital. This performance measure reflects not only a business’s operational profitability, but also how efficiently a company uses its invested capital.
What is economic profit
Economic profit measures value creation by reflecting a company’s revenue and total costs. When a company’s total cost (ie, operating and capital investment-related cost) is subtracted from its revenue, what remains is pure residual or economic profit as all costs have been reflected in producing revenue.
When a company generates positive economic profit, its return on capital, ie operating profit after tax/capital, exceeds its cost of capital, and therefore the company is creating value, while negative economic profit implies that its return on capital is below its cost of capital and that value is being destroyed.
Standardised economic profit, the basis of this performance analysis, provides a simple way to compare the productivity of employed capital across companies of differing industry and size. All data utilised for the Caribbean Corporate Performance Ranking is publicly available through company annual reports, websites and/or online databases, ie Refinitiv.
Because we compute economic profit, one important variable is the weighted average cost of capital. A company’s cost of capital is influenced by its industry’s business risk profile, the financial risk profile associated with how it is capitalised (ie, debt versus equity financing), and the sovereign risk profile of its operating domain.
Within this analysis, the cost of capital and associated economic profit calculation reflect these risk factors, albeit in a simplified and standardised fashion, with common region-wide business risk factors assigned by industry, financial risk assigned based upon a company’s actual capital structure, and sovereign risk assigned by the primary jurisdiction of the company’s stock exchange, ie TTSE, JSE, and BSE.
The ranking has been limited to the largest 35 companies, and is based upon year end 2025 financial information. It is important to note, that what is ultimately important to investors is not whether a company’s economic profit is positive or negative, but rather whether economic profit is improving or declining in line with investor expectations, as achieving this standard of performance will drive economic profitability, enterprise value and share price over time.
Make managers think and act like business owners
Managing an organisation with intent of creating value is a broadly accepted notion. Within the opening pages of virtually all annual reports one will find a bold statement of corporate commitment to the goal of value creation.
In many situations, however, this admirable goal hasn’t been adequately translated into decision-making tools and managerial practices that are in fact aimed at delivering shop-floor-level value creation.
Please let me be clear, this is rarely a failure of intent but rather one of not fully understanding what business performance measurements best represent value creation and, therefore, are best utilised as the basis of a management system.
What is needed is framework to plan, measure and manage business results the right way – a way that ensures that an organisation is focused and driven to deliver on its goal of value creation. Management’s challenge is to identify and exploit investment opportunities that maximise value creation. This task requires that information resources, decision-making capabilities, and skill in operations and financial management all be fully aligned towards the goal of value creation.
While it is difficult to predict what is over the horizon, it is entirely possible to ensure that managerial capabilities, motivation, and strong internal corporate governance are in place such that management is equipped to best respond to emergent opportunities and threats, as this will inevitably lead to improved economic performance and value creation over time.
Value-based management and economic profit have been developed to provide a practical solution to address this ever-present management challenge. While the adoption of value-based management will not guarantee a company the top spot in its industry, it will ensure improved corporate performance, health and profitability relative over time, as it introduces a more holistic approach to performance management that recognizes both operational profitability and capital efficiency – a view that is not unlike that of a business owner.
Strengthening the alignment of viewpoints, goals and objectives of managers and business owners is universally recognized as the path towards better corporate performance when measured on all dimensions.
Mack Ferguson is Managing Partner of Arche Value Management, Toronto, Canada His contact information is: Tel: 1-647-200-2219; Email: mferguson@archevaluemanagement.com; Website: www.archevaluemanagement.com
