Financial Statement Analysis

- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis Advantages
- Ratio Analysis
- Liquidity Ratios
- Cash Ratio
- Cash Ratio Formula
- Quick Ratio
- Quick Ratio Formula
- Current Ratio
- Current Ratio Formula
- Acid Test Ratio Formula
- Defensive Interval Ratio
- Working Capital Ratio
- Working Capital Formula
- Net Working Capital Formula
- Changes in Net Working Capital
- Cash Flow from Operations Ratio
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Liquidity
- Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Liquidity Risk
- Altman Z Score

- Turnover Ratios
- Inventory Turnover Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio

- Profitability Ratios
- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- OIBDA
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- CFROI
- Cash on Cash Return
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula

- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula

**Table of Contents**

## What is the NOPAT Formula?

NOPAT (Net Operating Profit After Taxes) formula measure of profit that excludes the costs and tax benefits of debt financing. It is the representation of the operating income or the earnings before interest and taxes (EBIT) adjusted for the impact of taxes.

Mathematically, net operating profit after tax formula represented as below,

**NOPAT = EBIT * (1 – Tax rate)**

Net Operating Profit After Tax Formula is also known as Net Operating Profit less adjusted Taxes (NOPLAT). It is to be noted that the formula for NOPAT doesn’t include the one-time losses or charges as such it is a good representation of the operating profitability of a company.

### Explanation of the NOPAT Formula

The formula for calculation of NOPAT can be derived by using the following three steps:

**Step 1:** Firstly, the EBIT of the company is determined on the basis of information available in the income statement. EBIT is computed by deducting the cost of goods sold and operating expenses from the total revenue of the company.

**EBIT = ****Total revenue – Cost of goods sold– Operating expenses**

**Step 2: **Now, the tax rate of the company is noted from the annual report of the company. Next, the tax-adjusted value is calculated by subtracting the tax rate from one i.e. (1 – Tax rate).

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**Step 3: **Finally, the formula for net operating profit after tax is derived by multiplying the EBIT with the value calculated in step 2 as shown above.

**Examples of NOPAT Formula (with Excel Template)**

Let’s see some simple to advanced examples of Net operating profit after tax (NOPAT) formula to understand it better.

#### Example #1

**Let us consider an example for the calculation of NOPAT for a company called PQR Ltd which is in the business of manufacturing customized roller skates for both professional and amateur skaters. At the end of the financial year, the company has generated $150,000 in total revenue along with the following expenses.**

Now, the operating income or EBIT of the company can be calculated as,

- EBIT = $150,000 – $70,000 – $25,000
- = $55,000

Therefore, the NOPAT of the company can be calculated as,

- NOPAT Formula = $55,000 * (1 – 20%)

- NOPAT = $44,000

Therefore, the NOPAT of PQR Ltd is $44,000 for the given financial year.

#### Example #2

**Let us take the real-life example of Apple Inc.’s annual report as of 2016, 2017 and 2018. Calculate the NOPAT for Apple Inc. based on the following available information:**

**EBIT**

Now, the EBIT of Apple Inc. can be calculated as,

EBIT (in Millions) = Net sales-Cost of sales – Research and development expense – Selling, general and administrative expense

**EBIT for Sep 24, 2016**

- =$2,15,639 – $1,31,376 – $10,045 – $14,194
- =$60,024

**EBIT for Sep 30, 2017**

- =$2,29,234 – $1,41,048 – $11,581 – $15,261
- =$61,344

**EBIT for Sep 29, 2018**

- = $265,595 -$163,756 -$14,236 – $16,705
- = $70,898

Now, the calculation of NOPAT of Apple Inc. for Sep 24, 2016 is as follows,

NOPAT (in Millions) = EBIT * (1 – Tax rate)

** Calculation of NOPAT for Sep 24, 2016**

- NOPAT Formula = $45,687 * (1 – 35.00%)
- NOPAT = $39,016

**Calculation of NOPAT for Sep 30, 2017**

- NOPAT Formula = $61,344 * (1 – 35.00%)
- NOPAT = $39,874

**Calculation of NOPAT for Sep 29, 2018**

- NOPAT Formula = $70,898 * (1 – 24.50%)
- NOPAT = $53,527.99 ~ $53,528

Therefore, Apple Inc.’s NOPAT stood at $53,528 Mn for the financial year ended on September 29, 2018.

### Calculator

You can use the following calculator.

EBIT | |

Tax Rate | |

NOPAT Formula = | |

NOPAT Formula = EBIT * (1 − Tax Rate) |

0 * (1 − 0) = 0 |

### Relevance and Use of NOPAT Formula

The formula for net operating profit after tax is basically a profitability metric that helps to assess how a company is operating efficiently which is calculated by measuring profit that is adjusted for the costs and tax benefits of debt financing. NOPAT provides such a view that is not affected by the leverage of the company or the massive bank loan on its books. Such adjustment is essential because these interest payments on debt shrink the net income which eventually reduces the tax expense of the company. Therefore, the equation for NOPAT helps an analyst to view how well the core operations of a company is performing (net of taxes). This is a profitability calculation which is measured in terms of dollars and not in percentages like most other financial terms.

However, there remains a limitation of the NOPAT that it is particularly useful when comparing similar companies in the same industry. Since the NOPAT equation only measures profit in terms of dollar amount, investors and other financial users usually find it difficult to use this metric to compare differently sized (small & medium enterprise, mid-corporate and large corporate) companies within an industry.

### Recommended Articles

This has been a guide to what is NOPAT (Net Operating Profit After Tax) Formula. Here we discuss how to calculate NOPAT using practical examples & downloadable excel template. You can learn more about financial analysis from the following articles –

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