Watford reversed a loss to record a profit of £1.33m over the final six months of 2006.
Promotion to the Premiership has seen costs rise but increased revenue has helped overcome the burden of a larger squad and investment in infrastructure.
The Hornets lost £438,947 over the equivalent period in 2005 - and a loss of £5m over the whole year, when the club were still in the Championship.
The club are three points adrift at the foot of the Premiership table.