Economic Profit Calculator
Enter NOPAT, invested capital and the cost of capital to compute economic profit = NOPAT − (capital × cost of capital), judging whether a business truly creates shareholder value.
Input Data
Results
At a glance:Economic profit (economic value added, EVA) = NOPAT − (invested capital × WACC). Unlike accounting profit, it charges the full cost of capital, so a positive economic profit means the business earns above its required return — real value creation; negative means it destroys value even with an accounting profit. It is the link between operating performance and shareholder value.
Formula
Capital charge = invested capital × cost of capital.
Economic profit = NOPAT − capital charge.
Equivalently: economic profit = (ROIC − WACC) × invested capital.
$$EP = NOPAT - C \times k$$$$EP = (ROIC - WACC) \times C$$How to Use
- Enter NOPAT (after-tax operating profit).
- Enter invested capital and the cost of capital (WACC).
- The tool returns the capital charge and economic profit.
Case Studies
Value created or destroyed?
NOPAT HK$500,000, capital HK$4,000,000, WACC 10%.
Capital charge = 4,000,000 × 10% = HK$400,000.
Economic profit = 500,000 − 400,000 = HK$100,000 (>0 → value created).
FAQ
How is economic profit different from accounting profit?
Accounting profit ignores the cost of capital; economic profit deducts a capital charge (capital × WACC), so only returns above the required rate count as real profit.
What does a negative result mean?
The business earns below its cost of capital — it destroys shareholder value even if it shows an accounting profit. Management should improve returns or redeploy capital.
What is WACC?
The weighted average cost of capital — the blended required return on debt and equity. Use your firm's WACC; higher WACC raises the capital charge and lowers economic profit.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.