If a Company is generating EPS or revenue growth, does that necessarily imply there is positive...

If a Company is generating EPS or revenue growth, does that necessarily imply there is positive economic profit created by the firm's management? Explain and give at least one specific factor for each variable that supports your answer.

Expert Solution

No. Earnings Per Share (EPS) or Revenue growth do not guarantee positive economic profit.

For example, EPC will be given on accounting profit. But economic profit also takes into acount opportunity costs. So there might be a scenario where accounting profit will be positive (which means there will be EPS), but economic profit might still be negative.

Revenue growth in isolation means nothing. A company may be experiencing very high revenue growth but if its costs are still higher, or the cost of borrowing funds is very high, then it may still be producing negative accounting and/or economic profit.

Rahul Sunny answered 2 years ago

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