Is there any relationship with these two at all? or is this just one of those mishaps resulting from naming conventions?
Economic Profit = Cash Flows - Change in Book Value
Economic Value Added = NOPAT - Re * Prev Book Value.
Is there a linking concept between these two? Surely, Profits and Value added should mean something similar, no?
Just to clarify terminology for you:
Economic Profit (EP) = NOPAT - $WACC
with NOPAT being the Net Operating Profit After Tax or EBIT(1-tax rate) and
$WACC being the WACC * Total Capital
Economic Value Added is a trademarked term that is essentially Economic Profit.
I believe you were thinking of Economic Income which can calculated to different ways:
Economic Income = Cash Flow + Change in Market Value
where Change in Market Value is Ending MV - Beginning MV
or
Economic Income = Cash Flow - Economic Depreciation
Economic Depreciation is simply Change in Market Value flipped: Beginning MV - Ending MV
Both of these methods are used to calculate NPV for the purposes of evaluting investment projects in corporate finance. They are similar, but I do not beleive there is a direct relation you need to worry about.
Is total capital Book value or market value?