NOPAT Calculator

What is NOPAT?

The Net Operating Profit After Tax (NOPAT) is a metric of a company's profitability. It represents the company's profit after deducting income tax assuming the company has no debt.

NOPAT is helpful for analyzing the company's performance over time and comparing similar companies.

Since interest payments are not considered while calculating NOPAT, it allows comparison of the companies regardless of the source of their financing. 

How to calculate NOPAT?

The calculation is straightforward, and all the required information can be found on the company's financial statement for a given period.

NOPAT formula

NOPAT value can be worked out using the following equation:

NOPAT = EBIT * (1 - TAX_RATE)

Where:

• EBIT - Earnings Before Interests and Tax
• TAX_RATE - percentage value of income tax

NOPAT calculation example

Let's calculate the NOPAT value for a retail company. The company's financial data look as follows:

Revenue: $100,000,000

Cost of Goods Sold (COGS): $55,000,000

Operating expenses: (SG&A): $15,000,000

Income Tax Rate: 35%

Gross Profit: $45,000,000

Operating Profit: $30,000,000

NOPAT = EBIT * (1-TAX_RATE) = $30,000,000 * (1-35%) = $19,500,000

For sure, NOPAT is a valuable metric. However, it has its pros and cons you need to be aware of in order to be able to interpret the results correctly. 

Advantages of NOPAT

• NOPAT is easy to calculate
• All the required data is easily accessible in P&L
• It gives an accurate company's profit value without involving debt payments.

Disadvantages of NOPAT

• Because NOPAT is not expressed as a percentage value, it doesn't allow for the direct comparison of companies that differ in size.

NOPAT is a crucial component of ROIC calculation.

Authors

Created by Lucas Krysiak on 2022-06-10 12:47:41 | Last review by Mike Kozminsky on 2022-10-14 15:31:57