Economic Profit (or Loss)
The difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. This can be used as another name for "economic value added" (EVA). Investopedia Says:
Don't confuse this with 'accounting profit', which is what most people generally mean when they refer to profit.
In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs are the alternative returns foregone by using the chosen inputs. As a result, you can have a significant accounting profit with little to no economic profit.
For example, say you invest $100,000 to start a business, and in that year you earn $120,000 in profits. Your accounting profit would be $20,000. However, say that same year you could have earned an income of $45,000 had you been employed. Therefore, you have an economic loss of $25,000 (120,000 - 100,000 - 45,000). Related Terms:
Cash Return On Capital Invested - CROCI
Cost Of Carry
Economic Value Added - EVA
Economics
Economies of Scale
Net Income - NI
Opportunity Cost
Profit
Standalone Profit Economic Value Added (EVA)
A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".)
The formula for calculating EVA is as follows:
= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital) Investopedia Says:
This measure was devised by Stern Stewart & Co. Economic value added attempts to capture the true economic profit of a company. Related Terms:
Cost Of Carry
Market Value Added - MVA
Market Value Added - MVA
Net Operating Profit After Tax - NOPAT
Return On New Invested Capital - RONIC
Shareholder Value Added - SVA |