Resource margin accounting: an elucidation and preliminary empirical testing

Abstract

Purpose

The aim of this paper is to describe “resource margin accounting” (RMA) as a valuation framework in strategic analysis.

Design/methodology/approach

The paper defines RMA as an improved framework for valuation in competitive strategy, relative to existing value‐added and cash flow methods. The framework was tested on a sample of 300 US manufacturing companies between 1983 and 1998.

Findings

The paper finds that the resource margin approach has greater explanatory power than traditional market‐to‐book valuation measures.

Practical implications

The resource margin approach is methodologically and empirically superior to economic value‐added (EVA) and cash flow models of valuation.

Originality/value

The paper presents and tests a new valuation method: RMA.

Citation

Johnson, P. and Thomas, H. (2007), "Resource margin accounting: an elucidation and preliminary empirical testing", Management Decision, Vol. 45 No. 3, pp. 420-433. https://doi.org/10.1108/00251740710745052