When Profits Are Losses: Analyst's Toolkit

BOSTON (TheStreet) -- Earnings can be misleading.

A company that has ample profits but carries expensive financing may be in worse shape than one with softer earnings and cheaper financing. A metric for performance evaluation developed by Stern Stewart & Co. known as Economic Value Added, or EVA, can help draw a distinction between firms that are flying high and those treading water.

Investment managers such as T. Rowe Price(TROW Quote), Charles Schwab(SCHW Quote), Legg Mason(LM Quote), BlackRock(BLK Quote) and Franklin Resources(BEN Quote) suffered earnings declines as the stock market took a nosedive starting late last year. But they have recently performed beyond expectations as investment gains have stanched net outflows from mutual funds and boosted management fees. Applying EVA to those companies will show which are enriching shareholders beyond the minimum required return. ...