Finance Formulas / July 6, 2018 / Alyvia French
Economic profit is not recorded on a company’s financial statements nor is it required to be disclosed to regulators, investors or financial institutions. Meanwhile, accounting profit is a widely used performance measurement to indicate the overall financial success of an organization. Accounting profit measures the actual cash outlays and inflows, while economic profits incorporate a "what if" analysis. For this reason, an entity may report an accounting profit but realize an economic loss because resources could have been utilized better.
DCF analysis is a key valuation tool at analysts' disposal. Analysts use DCF to determine a company's current value according to its estimated future cash flows. For investors keen on gaining insights on what drives share value, few tools can rival DCF analysis.
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