The methodology that we consistently apply in the Crux of Capitalism project includes the processing and aggregation of publicly available financial data from stock market-listed companies in twenty-one of the world’s largest economies, including Switzerland. We exclude firms in the finance and real estate sectors given their highly leveraged nature and sector-specific performance metrics. Starting from 2005 on, quarterly and annual financial reports were used in a consistent manner to obtain the largest possible dataset of publicly-listed companies in these economies.

To generate insights into the fundamental performance of capitalism around the world we focus on measures of value creation and financial distress. In terms of value creation, we go beyond traditional reported measures of accounting profit, correcting for the opportunity cost of capital and for other factors that better reveal the underlying level of economic profit of each firm.

In assessing corporate distress, we utilize established measures, specifically the interest coverage ratio and Altman’s Z’’-score. To ensure a comprehensive and well-informed approach when developing these measures of corporate performance, we actively sought the expertise of a diverse panel of experts with a strong background in finance, accounting, and economics. Their insights and recommendations were carefully considered and incorporated into the methodology.

To ensure soundness and reliability of the data and calculations underpinning the Crux of Capitalism project, we conducted a comprehensive set of quality checks. These checks encompassed various measures, including comparing Compustat stock market data with CRSP data, benchmarking the cost of capital against external providers, and rigorously testing the robustness of our economic profit calculations, among others.

For a more comprehensive understanding of our approach, we encourage you to read our methodology paper, which provides in-depth insights into our approach and research design choices. The paper describes how we combine firm-level accounting and market data, as well as data cleaning, imputation, and currency conversion. We also explain how outlined measures of value creation and financial distress are computed and presented on the website.