Question

What does it mean if managers consistently obtain positive accounting profits and negative economic profits?

Answer 1

Positive accounting profits but negative economic profits mean, that though the managers are generating a nominal surplus of revenues over expenses, that surplus is not sufficient to cover the cost of capital.

Example, a firm is financed with 100% debt with an after tax cost of 10%. The firm makes an operating profit of $9. Now though there is a positive accounting surplus, an investor is better off putting her money in a debt instrument which gives a comparable yield.