Numerical example of the entrepreneur's contribution Accounting profit $57,000 Foregone interest 1,000 Foregone rent 5,000 Foregone wages 22,000 Foregone entrepreneurial income 5,000 Total implicit costs $33,000 Economic profit
For every [pounds sterling]100 of revenue that Newcastle United earned between 2011-16 whilst in the Premier League, it achieved the highest level of economic profit
in the division at [pounds sterling]6.33, which was 47% higher than the next most-efficient club Tottenham Hotspur.
Accordingly, the performance appraisal based on economic profit
would classify the firm as growth-oriented, and justifiably so.
Intermingled in the EVA model is the traditional concept of economic profit
, which is explained as being the margin that exists between operating profit and the cost of capital used in order to produce the income (Ooi & Liow, 2002).
Key words: Yield, BCR, Gross margin, Net Revenue, Economic Profit
The added economic value represents an estimate of the real economic profit
, or the amount of the earnings that exceed the minimum rate accepted by the investors.
The decision to be an entrepreneur is a deeply personal one that requires an individual to weigh many factors that are too quickly swept under the rug of economic profit
maximization in the usual treatment of firm entry.
The key to generating positive economic profit
is in a firm's ability to charge highly for its products and services.
In particular, managing for shareholder value requires a focus on 'economic profit
' (as distinguished from 'accounting profit'), which in turn requires that accurate estimates of cost of capital be calculated and incorporated on a disciplined basis into all corporate investment decisions, domestically and internationally.
In its classic form, a corporation can be viewed as an investment vehicle, which, according to Milton Friedman, has the social responsibility to maximize economic profit
(New York Times Magazine, 9/13/70).
The primary financial metric on which the board and management should focus is the growth of economic profit