3 reasons why NET PROFIT can be a good measure from an economic perspective:
1) Holistic economic assessment
it provides a detailed point of view on a company's economic performance by considering all revenue and expenses, allowing for an evaluation of its financial health, to some extent
2) Market competitiveness
Positive net profit indicates that a company's revenue surpasses its expenses, demonstrating its ability to generate economic value and compete effectively in the market
3) Financial viability and sustainability
Consistent net profit signifies the company's capacity to generate economic returns over time, suggesting its financial viability and long-term sustainability in the marketplace
3 Reasons why NET PROFIT may not be sufficient from an economic perspective:
1) Incomplete financial picture
it overlooks crucial elements such as debt position and overall financial health, providing an incomplete assessment of a company's economic standing
2) Profitability without solvency
Positive net profit does not guarantee a company's ability to meet its long-term financial obligations, potentially masking underlying solvency issues that could impact its economic viability
3) Ignoring cash flow dynamics
Net profit fails to capture the timing and flow of cash within a company, disregarding its ability to fund operations, invest in growth and fulfill financial commitments
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