NOPAT stands for Net Operating Profit After Tax, which is a financial measure used to show how well a company performed through its core operations, net of taxes. It is a companys theoretical income from operations if it had no debt (no interest expense) . NOPAT is used to make companies more comparable by removing the impact of their capital structure, and it is frequently used in economic value added (EVA) calculations. NOPAT is precisely calculated as: NOPAT = (Net Income - after-tax Non-operating Gains + after-tax Non-operating Losses + after-tax Interest Expense) .

NOPAT is used by analysts and investors as a precise and accurate measurement of profitability to compare a companys financial results across its history and against competitors. It is a more accurate look at operating efficiency for leveraged companies, as it excludes tax savings from existing debt and one-time losses or charges. NOPAT doesn’t include one-time losses and other non-recurring charges, because they don’t represent the true, ongoing profitability of the business. NOPAT is frequently used by mergers and acquisitions analysts to calculate the free cash flow to firm (FCFF) and economic free cash flow to firm.

To calculate NOPAT, one removes Interest Expense and the effects of other non-operating activities (non-recurring gains and losses) from Net Income to arrive at a value that approximates the value of a firms annual earnings. For a rough calculation, NOPAT approximates earnings before interest after taxes (EBIAT) . The NOPAT formula is NOPAT=Operating Income×(1−Tax Rate) . NOPAT does not take into account changes in net working capital accounts such as accounts receivable, accounts payable, and inventory. Additionally, it includes depreciation and amortization (a non-cash expense) and doesn’t include capital expenditures (an actual cash expense) .

In summary, NOPAT is a financial measure used to show how well a company performed through its core operations, net of taxes. It is a more accurate look at operating efficiency for leveraged companies, and it is frequently used in economic value added (EVA) calculations. NOPAT is precisely calculated by removing Interest Expense and the effects of other non-operating activities from Net Income.