Ranch Vision reports “profit” in terms of “economic profit”. Economic profit is the truest reflection of a business’s actual financial performance because it takes into consideration not only all explicit costs, but also all implicit costs, while normal profit only considers explicit costs. Economic profit is best described as the total revenue a business earns minus the total costs, including explicit costs (like cash costs) and implicit costs (opportunity costs).

To calculate economic profit, subtract explicit and implicit costs from total revenue. The formula is:

Economic Profit = Total Revenue - Total Explicit Costs - Total Implicit Costs.

This calculation helps determine the overall profitability of a business after considering all costs involved in production.

Measurements of profit that do not consider opportunity costs are artificially inflated. To have zero “economic profit” means all costs are covered and all resources are used according to maximal efficiency.

Note that in the context of economic profit, zero profit is satisfactory. Since Ranch Vision displays economic profit in its Profit and Loss Report, don't be surprised to find very low, zero, or even negative profits (losses) reported.

To see your normal profit numbers without opportunity cost, just pull up the Profitability report on your Ranch Vision dashboard. Ranch Vision’s projection of Net Ranch Income, found in the Profitability report, reflects normal profit without consideration of opportunity costs.