what is net operating profit after tax 
net operating profit after tax nopat is a financial measure that shows how well a company performed through its core operations net of taxes nopat is frequently used in economic value added eva calculations and is a more accurate look at operating efficiency for leveraged companies nopat does not include the tax savings many companies get because of existing debt 1understanding net operating profit after tax nopat net operating profit after tax nopat is a company s potential cash earnings if its capitalization were unleveraged that is if it had no debt the figure doesn t include one time losses or charges these don t provide a true representation of a company s true profitability some of these charges may include charges relating to a merger or acquisition which if considered don t necessarily show an accurate picture of the company s operations even though they may affect the company s bottom line that year analysts look at many different measures of performance when assessing a company as an investment the most commonly used measures of performance are sales and net income growth sales provide a top line measure of performance but they do not speak to operating efficiency net income includes operating expenses but also includes tax savings from debt net operating profit after tax is a hybrid calculation that allows analysts to compare company performance without the influence of leverage in this way it is a more accurate measure of pure operating efficiency to calculate nopat the operating income also known as the operating profit must be determined it includes gross profits less operating expenses which is comprised of selling general and administrative e g office supplies expenses 2 the nopat formula isnopat operating income 1 tax rate where operating income gross profits less operating expenses begin aligned text nopat text operating income times left 1 text tax rate right textbf where text operating income text gross profits less operating expenses end aligned nopat operating income 1 tax rate where operating income gross profits less operating expenses nopat examplefor example if ebit is 10 000 and the tax rate is 30 the net operating profit after tax is 0 7 which equals 7 000 calculation 10 000 x 1 0 3 this is an approximation of after tax cash flows without the tax advantage of debt note that if a company does not have debt net operating profit after tax is the same as net income after tax when calculating net operating profit after tax analysts like to compare against similar companies in the same industry because some industries have higher or lower costs than others special considerationsin addition to providing analysts with a measure of core operating efficiency without the influence of debt mergers and acquisitions analysts use net operating profit after tax they use this to calculate free cash flow to the firm fcff which equals net operating profit after tax minus changes in working capital they also use it in the calculation of economic free cash flow to the firm fcff which equals net operating profit after tax minus capital both measures are primarily used by analysts looking for acquisition targets since the acquirer s financing will replace the current financing arrangement another way to calculate net operating profit after tax is net income plus net after tax interest expense or net income plus net interest expense multiplied by 1 minus the tax rate analysts may also look at the business profitability using net operating profit less adjusted taxes noplat 