NOPAT
By Jude Wallis
NOPAT is net operating profit after tax: operating profit multiplied by one minus the tax rate. It measures what the operations earn with financing left out.
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The point of NOPAT is that it does not deduct interest. Two companies running identical operations, one funded by debt and one by shares, report the same NOPAT and very different net income. That makes it the profit figure to use when the question is about the business rather than the balance sheet.
Because interest is not deducted, the tax rate applied is a rate on operating profit, not the effective rate from the accounts. An effective rate that has already been reduced by an interest deduction quietly credits the operations with a tax break that financing earned.
NOPAT is the numerator of return on invested capital and the starting point of economic profit. The NOPAT calculator applies the tax haircut, how NOPAT works is the explainer, and NOPAT against net income shows what the two measures each include.