Economic Profit Calculator

Your details

Microeconomic mode uses the textbook formula: economic profit = revenue minus explicit costs minus implicit costs. EVA mode is used by corporate finance analysts: economic profit = NOPAT minus (invested capital times WACC).
All income generated from sales or services during the period.
Costs that involve a direct cash outlay: wages, rent, materials, utilities, advertising and so on.
The value of the next-best alternative you gave up: foregone salary if you own the business, foregone investment returns on capital you deployed here, foregone rent if you use your own property.
Currency
Economic ProfitValue Creating
$120,000

Revenue minus all costs including opportunity costs

Accounting Profit$180,000
Total Economic Costs$380,000
Economic Profit$120,000
Accounting Profit$180,000
NOPAT-
Capital Charge-

Economic profit: +$120,000, this business creates real value.

  • Your business generates $120,000 above every cost including opportunity costs. This means it is the best use of your time and capital among the alternatives you compared.
  • Your accounting profit is $180,000, which looks larger because it ignores $60,000 of implicit (opportunity) costs.
  • The $60,000 gap between accounting and economic profit is the value of the best alternative you gave up.
  • In competitive markets, persistent positive economic profit attracts rivals, eroding it toward zero over time.

Next stepTrack this figure over multiple periods to see whether entry of competitors is eroding your economic surplus.

 = Powered by OnlyCalculators