Economic Profit Calculator


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What is economic profit?

The economic profit (or loss) is the difference between the turnover from the economic activity and the incurred costs. 

The costs consist of direct business costs and opportunity costs. The first part of the costs is rather obvious and intuitive for example costs of goods sold, rent, salaries etc.

The opportunity costs are ticky. They represent those implicit costs that are less intuitive. It covers the costs of giving up alternative economic activity. For example if you quit your job in order to start a new business the implicit costs would be the difference from the money you make in your new company and your previous job.

The economic profit definition is one of the most basic economic concepts and its understanding is crucial to run a successful business. Since the key to entrepreneurship is to make the best decisions possible from all possible alternatives.

How to calculate economic profit

The calculator of economic profit requires following the procedure below:

  1. Find out your revenue for a given period.

  2. Sum all the explicit costs of your business like rent, payroll, COGS etc.

  3. Calculate the missing opportunity costs.

  4. Fill the data into the form above or substitute to the formula below.

Economic Profit Formula

economic profit = total revenue - explicit costs - implicit_costs

Accounting profit vs. economic profit

As you probably already know, profits may be defined in many ways. One of the alternative metrics to economic profit is accounting profit.

Since the purpose of accounting is to be as strict as possible the accounting profit must be based on exact numbers. There is no room for speculation on implicit costs.

Similar tools

There are other financial indicators of profit. For example EBIT, EBITDA or NOPAT. All of them could be calculated using tools available here on Calcopolis.


Authors

Created by Lucas Krysiak on 2022-07-15 13:08:17 | Last review by Mike Kozminsky on 2022-07-18 16:55:47

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