NOPAT – Net Operating Profit after Tax

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What is NOPAT?

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Net Operating Profit after Tax – abbreviation NOPAT – the measurement of the business operational profitability, which allows eliminating the impact of financing and other non-operating activities on such analysis.

The main focus is on the profit from the main activities of the business – Operating Profit.

Such analysis also is important, when we would like to compare businesses, operating in the same industry, but having different financial structure or having different income or expenses from non-core activities.

It is important also no note, that NOPAT is not appropriate for comparing operating profitability of the businesses operating in the different industries, since core operations profitability might be very different.

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NOPAT Formula

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Operating Profit, also can be called EBIT – Earnings Before Interest and Tax, – can be found in the Income Statement of the company.

Tax Rate – tax percentage, which can be found in the annual report of the company.

Applying this formula, the result is Net Operating Profit reduced by tax expenses.

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NOPAT Calculation Example

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Below you can find NOPAT calculation example:

First source of information – Income Statement, from which we do take Operating Profit (or EBIT), which equals to $36,714

Tax Rate – 27%, usually it can be located in the annual report of the company

Applying NOPAT formula we get the following result:

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This measure indicates, how much profit, reduced by income tax expenses, the business can earn from its core activities.

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NOPAT VIDEO

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