Which of the following best defines the term 'economic profit'?
A) The amount earned by a business after deducting all operating expenses and a charge for the opportunity cost of the capital employed
B) The amount earned by a business over a number of years: it is equal to the cumulative profit less interest plus depreciation
C) The rate of return earned by a business on sales over a period
D) The amount earned by a business as shown in the profit and loss account but with depreciation and any increase in working capital added back

Question

Quizplus · Accepted Answer

Economic profit refers to the amount earned by a business after deducting all operating expenses and a charge for the opportunity cost of the capital employed. This includes not only accounting costs but also the cost of using resources that could have been earning a return elsewhere. It is a more accurate measure of a company's profitability than just looking at its accounting profit. Choices B, C and D do not accurately define economic profit.

Which of the Following Best Defines the Term 'Economic Profit