How does economic profit differ from net income?
A. The major difference is that net income includes a capital charge, that is, a cost of using all capital. In contrast, economic profit includes a charge for using debt capital (interest) but no charge for using equity capital. Some measures of economic profit rely primarily on financial reporting numbers and others, such as EVA, include adjustments such as deducting cash taxes rather than tax expense or capitalizing rather than expensing R&D.
B. The major difference is that net income includes a capital charge, that is, a cost of using all capital. In contrast, economic profit includes a charge for using debt capital (interest) but no charge for using equity capital. Some measures of net income rely primarily on financial reporting numbers and others, such as EVA, include adjustments such as deducting cash taxes rather than tax expense or capitalizing rather than expensing R&D.
c. The major difference is that economic profit includes a capital charge, that is, a cost of using all capital. In contrast, net income includes a charge for using debt capital (interest) but no charge for using equity capital. Some measures of economic profit rely primarily on financial reporting numbers and others, such as EVA, include adjustments such as deducting cash taxes rather than tax expense or capitalizing rather than expensing R&D.
D. The major difference is that economic profit includes a capital charge, that is, a cost of using all capital. In contrast, net income includes a charge for using debt capital (interest) but no charge for using equity capital. Some measures of net income rely primarily on financial reporting numbers and others, such as EVA, include adjustments such as deducting cash taxes rather than tax expense or capitalizing rather than expensing R&D.