A business can show an accounting profit yet an economic loss if the owner could earn more elsewhere. In perfectly competitive markets, long-run economic profit tends to zero.
How to use the Economic Profit Calculator
- Total revenue
- Explicit costs
- Forgone salary (owner’s opportunity cost)
- Capital invested by the owner
- Return the capital could earn elsewhere
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter revenue, explicit costs and implicit costs such as forgone salary and the return your capital could earn elsewhere.
Tips
- Use consistent periods (a year or a quarter) for flow figures and period-end values for balances.
- Average opening and closing balances when a ratio mixes a flow with a stock.
- Benchmark against competitors in the same industry.
- Read the ratio together with others – profitability, liquidity and efficiency tell different stories.
Common mistakes to avoid
- Using sales instead of cost of goods sold for inventory ratios.
- Mixing gross, operating and net profit.
- Ignoring one-off items that distort a single year.
Inputs explained
| Field | What to enter |
|---|---|
| Total revenue | Amount in your currency |
| Explicit costs | Amount in your currency |
| Forgone salary (owner’s opportunity cost) | Amount in your currency |
| Capital invested by the owner | Amount in your currency |
| Return the capital could earn elsewhere | In % |
What each result means
- Accounting profit = [Total revenue] – [Explicit costs]
- Implicit costs = [Forgone salary (owner’s opportunity cost)] + [Capital invested by the owner]×[Return the capital could earn elsewhere]÷100
- Economic profit = [Accounting profit] – [Implicit costs]
Example values
How the main result changes when Total revenue changes and everything else stays at the example values above:
| Total revenue | Economic profit |
|---|---|
| 200,000 | -172,000 |
| 300,000 | -72,000 |
| 400,000 | 28,000 |
| 500,000 | 128,000 |
| 600,000 | 228,000 |
| 800,000 | 428,000 |
Formula
Accounting profit = revenue − explicit costsEconomic profit = accounting profit − implicit costs (forgone salary, forgone return on capital)Worked example
Inputs — Total revenue: $400,000; Explicit costs: $280,000; Forgone salary (owner's opportunity cost): $80,000; Capital invested by the owner: $200,000; Return the capital could earn elsewhere: 6 %.
Results — Accounting profit = $120,000.00; Implicit costs = $92,000.00; Economic profit = $28,000.00; Result = Economic profit – resources are earning more than alternatives.
Frequently asked questions
What is economic profit?
Accounting profit minus opportunity costs.
What is normal profit?
Zero economic profit – just covering opportunity costs.
Can economic profit be negative while accounting profit is positive?
Yes.
What formula does the Economic Profit Calculator use?
Accounting profit = revenue − explicit costs.