Market prices, economic value measures

Although the GNP was a measure of output in the past, in the last two decades, the gross domestic product (GDP) has come to be viewed as a more realistic measure of the economic output of the United States or any nation. By definition, the GDP is the total output of goods and services produced by labor and property located in the United States or any nation and valued at market prices. For the economy as a whole, the total of all final uses of commodities equals the total value added by all industries, or GDP. 

The business measures its economic value via market share, value per customer, visits per time, and net earnings (Jambulingham et al., 2005). From the customer perspective, economic value delivers quality, reliability, servicing skills, time efficiency, accessibility, and acceptable pricing. Business measures include monitoring. 

Research studies found that risk premiums fall in an environment of economic prosperity and rise when conditions are poor. Lower-rated corporations usually have less diversified sources of income and thus are more sensitive to changes in the macroeconomic situation than higherrated ones. Risk aversion increases with rising uncertainty and leads to higher expected compensation in the form of additional yield versus government bonds. Hence the effects of a company s individual actions to increase bondholder value can only inaccurately be measured. On the other hand, the spreads based on prices of the financial markets have anticipative character and reflect the expectations of a broad average of market participants. 

The most important shortcoming of economic indicators is the lack of ability to reflect the structural differences among countries, or within a country in time. To some extent this can be corrected for by using decomposition analysis (see Section IV.C). However, usually only intersectoral differences in stiuctine are accounted for in this type of analysis. In addition, economic efficiency indicators can be strongly inflnenced by changes in product prices, feedstock prices, etc. Furthermore, parts of the economy do not generate valne added (as measured in the official statistics), such as trade in informal economies (black markets) or barter economies, intermediate products that are used within the same compare, etc. For historical analyses, we also have the a problem that planned economies did not use concepts like GDP and value added. 

There are a variety of objective functions that are used for economic optimization. Some are quite elegant and incorporate the concept of the time value of money. Examples are net-present-value and discounted cash flow. These methods are preferred by business majors, accountants, and economists because they are more accurate measures of profitability over an extended time period. However, a lot of assumptions must be made in applying these methods, and the accuracy of these assumptions is usually quite hmited. The prediction of future sales, prices of raw materials and products, and construction schedule is usually a guessing game made by marketing and business managers whose track record for predicting the future is almost as poor as the weather man. 

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