corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...

, net operating profit after tax (NOPAT) is a company's after-

tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

operating profit In accountancy, accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit (accounting), profit that includes all incomes and expenses (operating and Non-operating income, non-operating) except interest expense ...

for all investors, including shareholders and debt holders.Moneyterms.co.uk
NOPAT
/ref> NOPAT is used by analysts and investors as a precise and accurate measurement of profitability to compare a company's financial results across its history and against competitors. When calculating NOPAT, one removes

Interest Expense Interest expense relates to the cost of borrowing money. It is the price that a lender charges a borrower for the use of the lender's money. On the income statement, interest expense can represent the cost of borrowing money from banks, bond in ...

and the effects of other non-operating activities (non-recurring gains and losses) from

Net Income In business and Accountancy, accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and Amortization (a ...

to arrive at a value that approximates the value of a firm's annual earnings. NOPAT is precisely calculated as: NOPAT = (

- after-tax Non-operating Gains + after-tax Non-operating Losses + after-tax

) NOPAT doesn't include one-time losses and other non-recurring charges, because they don't represent the true, ongoing profitability of the business. For example, a company may incur acquisition costs that would not be expected to occur in the future. These costs would negatively affect current year earnings, but do not accurately portray the operations of the firm. These costs should be excluded when performing any type of analysis to determine the operating and financial efficiency of a firm or to compare performance against other firms. According to analyst and economist, Joseph Noko, "An added difficulty is that the elements we need to determine the operating performance of a business are not simply on the face of the financial statement, but they are sprinkled across the annual report, in the MD&A, the footnotes and notes. Moreover, managers are given enormous discretion in classifying items and how they can present disclosures. Further complications are that judgement must be exercised to determine a disclosure’s impact on operating performance and to place each disclosure in the proper economic category." He argues that great diligence must be paid to ensure that NOPAT is calculated accurately, making adjustments for both reported and hidden items. Noko notes that NOPAT can be calculated in two mathematically equivalent ways. From a financing perspective, NOPAT can be described as below, whereas, from an operating perspective, NOPAT can be described as below,

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* Corporate finance Fundamental analysis Profit {{fin-stub

See also

References

External sources