Register now or log in to join your professional community.
Financial Profitability is as a result of the difference between Revenues earned and the Costs incurred which are recognized as per the Generally Accepted Accounting Principles.
There are different measures of Profitability for the different stages of expenses like the Gross Profit, Operating Profit, Profit before Tax, Net Income, Retained Earnings which is Net Income - Dividends.
And these measures can be analysed for different purposes for checking the return
for all Capital Providers (Debt plus Equity) which is EBIT (Operating Profit),
Equity providers which is Net Income (Profit after Tax).
Economic Profit is a measure of returns which is measured as access over the cost of capital which includes Debt as well as Equity.
It provides a measure to calculate the value of the company too on the basis of its Economic performance.
Economic Profit = NOPAT - WACC
NOPAT is Net Operating Profit after Tax which is Net Profit After Tax + Depreciation
WACC is Weighted Average Cost of Capital rate * Total Capital Employed which includes Debt + Equity.
