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Resource Margin Accounting: A Theoretical Perspective

Peter Johnson


In this paper a valuation framework known as Resource Margin Accounting (RMA) is described and elucidated. The framework overcomes a number of the deficiencies of traditional cash-flow methods, and is methodologically superior to Economic Value Added (EVA). Resource margins have their origins in the microeconomics of industrial structure, and are robust performance measures well-captured by accounting systems. Through the adoption of clean-surplus accounting, resource margins may be made entirely compatible with financial portfolio theory, and at the level of individual companies they may be the focus of value creation through competitive strategy initiatives. In a further paper empirical evidence to validate this new approach to valuation of companies and strategies will be presented.

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