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Net Operating Profit After Tax

What is Net Operating Profit After Tax?

Net Operating Profit After Tax (NOPAT) is a financial performance metric that calculates profit gained through core operations after taxes. This metric is used to measure operating efficiency without the impact of debt, because the calculation does not take tax benefits from debt into consideration. In other words, if a company has no debt, their NOPAT and net income after tax would be identical.

How to calculate Net Operating Profit After Tax

ƒ Sum(Operating Income) * (1 - Sum(Tax Rate))

Example

If operating income is $100,000 and the tax rate is 30%, then NOPAT is $100,000 * (1 - 30%) or $100,000 * .7, which is $70,000.

More about this metric

NOPAT is a useful metric to determine operating efficiency of core business operations without the impact of debt. This is useful when trying to calculate free cash flow to the firm, mainly used to consider mergers or acquisitions. By looking at earnings as though capital is unleveraged, you obtain a pure measure of operating efficiency.

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