Posted in Finance, Accounting and Economics Terms, Total Reads: 689
Definition: Economic Benefits
The benefit obtained out of an action that can be measured in monetary terms is known as economic benefit of that action. For example, investing in stock by an individual is an action. Then the dividend collected through the stock or the capital gain acquired on selling the stock will be the economic benefit of the stock for the individual.
Similarly, if a company invests in new machinery or an expansion or in acquiring a new firm, then the increase in revenue that it generates through the action is termed as the economic benefit of the machinery, expansion and the new firm. It is a measure of how better off the firm is after undertaking the specific action i.e. financially.
Example: The concept of NPV to some extent relates to this notion. The NPV or the Net Present Value of a project is given as follows –
NPV= -Initial Investment + Present Values of future cash flows
This gives a measure of the revenues the project or action will be generating minus the initial investment. If the NPV comes out to be positive, this means that the action will result in positive economic benefit i.e. the firm will be better off economically post-adoption of the action.