Boeing Frontiers
July 2003
Volume 02, Issue 03
Top Stories Inside Quick Takes Site Tools
Focus on Finance
Measuring profit, sharing success

If it's July, that means it's time for Boeing to announce its financial results through the second quarter of the year. Business news reporters will most likely use figures such as earnings and earnings per share to assess how Boeing fared in the quarter. Boeing employees, however, should be more interested in "economic profit."* This number isn't normally mentioned in financial reports—in fact, Boeing considers economic profit targets and its performance against those targets sensitive material information and doesn't publicize them. However, economic profit reflects the value Boeing employees are creating for the company's stakeholders and is the primary measure of how Boeing and its employees are doing.


Cost of capital based on two main factors

To calculate economic profit*, the capital charge is subtracted from net operating profit after taxes—revenues minus both the costs needed to run the business (labor, overhead, materials, research and development expenses, sales and marketing expenses, etc.) and taxes.

One component of the capital charge is the "cost of capital." According to the glossary on the Managing for Value Web site on the Boeing intranet (http://manag, the weighted average cost of capital is the "weighted average of the cost of debt and the cost of equity. [The] cost of debt is the average rate paid to the lending institutions for money, as interest payments. [The] cost of equity is the average rate of return investors—the shareholders—expect to earn for risking their investment money."

Multiplying this figure by the net assets yields the capital charge.

* Represents a non-GAAP (Generally Accepted Accounting Principles) measure. Boeing does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently.


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