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In corporate finance, net operating profit after tax or NOPAT is a company's after-tax operating profit for all investors, including shareholders and debt holders.[1] It is defined as follows[2]:
- NOPAT = Operating profit x (1 - Tax Rate)
An alternative formula is as follows[3]
- NOPAT = Net Profit After Tax + after tax Interest Expense – after tax Interest Income
For companies with no debt and thus no interest expense, NOPAT is equal to net profit. In other words, NOPAT represents the company's operating profit that would accrue to shareholders (after taxes) if the company had no debt.[2]
Another fully equivalent expression is
- NOPAT = AdjEBIT - CashOpTax
where:
- AdjEBIT represents adjusted earnings before interest and taxes (adjusted EBIT)
- CashOpTax represents cash operating taxes.
NOPAT is frequently used in calculations of Economic value added and Free cash flow.[1][2]
Contents |
Numerical example
Financing approach
| Net income | 500 |
| + Interest expense after taxes | 450 |
| Total profit after tax | 950 |
| - Interest income after taxes | 100 |
| NOPAT | 850 |
See also
References
External sources
- G. Benett Stewart III (1991). The Quest for Value. HarperCollins.
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