# Examples The Best Financial Ratios Key Ratio Formulas Solvency Formula And Types Profitability Liquidity Measure Quick Analysis Interpretation Acid Test Accounting Rations Bank

Finance Formulas / July 19, 2018 / Alia Marquez

## Net Exports Formula

### Break Even Point Formula

#### Retail Markup Formula

##### Expected Return Formula
###### Segment Length Formula

An individual starts a business and incurs startup costs of \$50,000. During the first year of operation, the business earns a profit of \$75,000. If the individual had stayed at his previous job, he would have made \$30,000. In this example, the accounting profit is \$25,000, or \$75,000 - \$50,000. However, because the individual had the potential to earn income at another location while retaining the startup costs of the business, an economic loss of \$5,000, or \$25,000 - \$30,000, is incurred. Although an accounting profit occurred, the individual would have made a larger profit if he had stayed in his previous position.

Economic profit or loss is most useful when comparing multiple outcomes and making a decision between these outcomes. This is especially true for decisions with multiple variables that affect and do not affect accounting profit. For instance, one decision may result in a higher accounting profit, but after other variables are considered, the economic profit of another decision may be higher.

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