| Accounting profit |
Normal profit after tax |
Economic profit (loss) |
Business valuation |
| Net profit (based on the statement of financial results) |
> |
Interest (other income) on invested capital – Tax on income from investment of funds |
=> |
Positive economic profit |
The business is successful |
| Net profit (based on the statement of financial results) |
= |
Interest (other income) on invested capital – Tax on income from investment of funds |
=> |
Zero economic profit |
Investing in this business is no worse than other alternative investments |
| Net profit (based on the statement of financial results) |
< |
Interest (other income) on invested capital – Tax on income from investment of funds |
=> |
Negative economic profit (economic loss) |
Investing in this business is worse than other alternative investments |
