accounting income vs. economic income

I’m confused- how is accounting income different from economic income? Thanks. David

Economic Income = CF - Economic Depreciation Econ Depric = MVo - MV1 Accounting Income = Net Income Economic Income does excluded interest because the affect of interest is captured by discounting EI at the WACC. Economic income is less than accounting income.

Residual Income = eocnomic profit = after tax income - equity charge (doesn’t include debt stuff) Economic income = Economic Value Added??? = NOPAT - ($ WACC)?? Holy cow…is that right? Please don’t tell me there is a 4th one … Accounting income is just a lie…it’s Net Income…all manipulation…just remember that.

kellyc319 Wrote: ------------------------------------------------------- > Residual Income = eocnomic profit = after tax > income - equity charge (doesn’t include debt > stuff) > > Economic income = Economic Value Added??? = NOPAT > - ($ WACC)?? Holy cow…is that right? Please > don’t tell me there is a 4th one … > > Accounting income is just a lie…it’s Net > Income…all manipulation…just remember that. it should be market value added (MVA) = EP/(1+wacc)^t

Ok so i guess eocnomic value added is NOT the same thing as market value added which is NOT the same thing as economic income. Only thing that is true is residual income = economic profit. God, I’ll never be able to keep this straight. Shit.

Economic profit is just that economic profit . . . isn’t it? Residual income is just residual income. I’ll go bat $hit if they’re not.

What do you mean…is just that… niblita? they are the same thing…that is the ONLY thing i know hahahaha. Scwheser book 4, page 280 – residual income = economic profit= net income - equity charge.

Maybe I am getting economic value add and economic profit confused? I thought economic profit was EVA. Tell me what you think, I may call it a night after.

No Residual income = economic profit. that’s it. I thought economic INCOME is EVA, but the thread above seems to suggest economic income = MVA. I can’t find it in the schweser books. Someone just needs to summurize it all up. Does anyone have this STRAIGHT??

Economic profit = NOPAT - $WACC Economic income = EBIT(1-t) + Dep - Economic Dep (change in MV) ?

ACCT Income = Rev - Costs Econ Income = ATCF (before interest expense) + chg. in MV Econ Profit = EVA = NOPAT - $WACC MVA = EP/WACC RI is a different model all together…RI = NI - Equity Charge

chadtap Wrote: ------------------------------------------------------- > ACCT Income = Rev - Costs > Econ Income = ATCF (before interest expense) + > chg. in MV > Econ Profit = EVA = NOPAT - $WACC > MVA = EP/WACC > > RI is a different model all together…RI = NI - > Equity Charge Thats what I thought. Thanks chadtap.

Economic Income = CFat - (MVo-MV1) = Economic version of net income Economic Profit = NOPAT - $WACC = Firm “economic profit” = EVA Residual Income = NI - Re*Equity = Equity holders “economic profit” They are all different terms. NPV=MVA= Present Value of Econ Profit discounted at WACC

McLeod81 Wrote: ------------------------------------------------------- > Economic Income = CFat - (MVo-MV1) = Economic > version of net income > > Economic Profit = NOPAT - $WACC = Firm “economic > profit” = EVA > > Residual Income = NI - Re*Equity = Equity holders > “economic profit” > > They are all different terms. > > > NPV=MVA= Present Value of Econ Profit discounted > at WACC NPV=MVA= Present Value of Econ Profit discounted at WACC = PV of RI discounted at cost of equity

^Dsylexic… I think you can get into trouble using that MVA = PV of RI at r Im not a 100% sure but I dont think I would stick to that…It may work sometimes but what about…Capital Changes, or if the clean surplus acct relation doesnt hold…just to think of a few… I see what you are saying…its like comparing FCFF vs. FCFE whereas FCFF is discounted at WACC and FCFE is at cost of equity and they both adjust for interest expense accordingly… but the FCFE adjusts for market value of debt changes… just my 2 cents…