1. What is Economic Profit?

Economic Profit (also known as Economic Value Added or EVA) measures a company's financial performance based on residual wealth calculated by deducting the cost of capital from operating profit. It shows true economic profitability after accounting for all capital costs.

2. How Does the Calculator Work?

The calculator uses the Economic Profit formula:

Where:

• \( \text{NOPAT} \) — Net Operating Profit After Tax (in USD)
• \( \text{Invested Capital} \) — Total capital invested in the business (in USD)
• \( \text{WACC} \) — Weighted Average Cost of Capital (as percentage)

Explanation: The formula shows how much value a company creates beyond the required return of its capital providers.

3. Importance of Economic Profit

Details: Unlike accounting profit, economic profit considers opportunity costs and helps assess whether capital could be better deployed elsewhere. Positive economic profit indicates value creation.

4. Using the Calculator

Tips: Enter NOPAT and Invested Capital in USD, and WACC as a percentage. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between economic profit and accounting profit?
A: Accounting profit only considers explicit costs, while economic profit includes both explicit and implicit opportunity costs.

Q2: How is NOPAT different from net income?
A: NOPAT excludes interest expenses and tax benefits from debt, providing a clearer view of operating performance.

Q3: What is considered a good economic profit?
A: Positive economic profit indicates value creation. The higher the better, but context depends on industry and company size.

Q4: How often should economic profit be calculated?
A: Typically calculated quarterly or annually, along with standard financial reporting.

Q5: Can economic profit be negative?
A: Yes, negative economic profit means the company isn't covering its cost of capital, indicating value destruction.