What do you mean by super profit?

By Ritesh|Updated : November 15th, 2022

The practice of making extra average profits over typical profits is known as super profit. This approach bases the estimation of goodwill on super-profits. when a consumer's or a buyer's advantage is greater than the usual return on invested capital The term "super profit method" refers to the excess of actual/average profit over normal or average profit.

Super Profit Method Formula: Super Profit = Average Profit – Normal Profit

Super Profits Method

This approach or technique produces expected future maintainable profits in excess of typical profits. Below is a list of these methods' two super profits techniques:

  1. According to the number of years, the purchase method Super-profits are multiplied by a specific number from the purchase year to determine goodwill. You can assess it by using the formula as Super Profit = Actual or Average profit – Normal Profit
  2. The average super profit is taken into account as an annuity value over a specific number of years in the Annuity Method. The current value of an annuity at the specified interest rate is calculated using a discounted amount of super profit. Here, the formula to be applied is.

Goodwill = Super Profit x Discounting Factor

Summary:

What do you mean by super profit?

The practice of making extra average profits over typical profits is known as super profit. when a consumer's or a buyer's advantage is greater than the usual return on invested money.

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