What is Economic Profit?
Economic Profit The residual profit after subtracting the cost of capital from net operating profit after taxes (NOPAT); used to measure value creation beyond accounting profit, as in Economic Value Added (EVA) frameworks.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Economic Profit” Used in Practice?
A positive economic profit indicates the firm generated returns in excess of its cost of capital, creating shareholder value.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Economic Profit?
The residual profit after subtracting the cost of capital from net operating profit after taxes (NOPAT); used to measure value creation beyond accounting profit, as in Economic Value Added (EVA) frameworks.
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