Economic Profit
NOPAT minus the capital charge (WACC times invested capital). The dollar amount of value a business creates above what its capital cost to raise. Sometimes called residual income, EVA (Economic Value Added), or abnormal earnings. Economic profit completes the picture that GAAP net income leaves incomplete: GAAP charges the income statement for the cost of debt (interest) but charges nothing for the cost of equity capital, so accounting profit reflects only one half of the cost of capital. Economic profit charges for both.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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