In corporate finance

Corporate finance

Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value while managing the firm's financial risks...

, net operating profit after tax or NOPAT is a company's after-tax

Tax

To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 operating profit

Earnings before interest and taxes

In accounting and finance, earnings before interest and taxes is a measure of a firm's profit that excludes interest and income tax expenses. Operating income is the difference between operating revenues and operating expenses...

 for all investors, including shareholders and debt holders. It is equal to NOPLAT

NOPLAT

NOPLAT = Net Operating Profit Less Adjusted Taxes.It means Total operating profits for a firm with adjustments made for taxes. It represents the profits generated from a company's core operations after subtracting the income taxes related to the core operations...

 and is defined as follows:

NOPAT = Operating profit

Earnings before interest and taxes

In accounting and finance, earnings before interest and taxes is a measure of a firm's profit that excludes interest and income tax expenses. Operating income is the difference between operating revenues and operating expenses...

 x (1 - Tax

Tax

To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 Rate)

An alternative formula is as follows

NOPAT = Net Profit After Tax

Net profit

Net profit or net revenue is a measure of the profitability of a venture after accounting for all costs. In a survey of nearly 200 senior marketing managers, 91 percent responded that they found the "net profit" metric very useful...

 + after tax Interest Expense – after tax Interest Income

For companies with no debt and thus no interest expense, NOPAT is equal to net profit

Net profit

Net profit or net revenue is a measure of the profitability of a venture after accounting for all costs. In a survey of nearly 200 senior marketing managers, 91 percent responded that they found the "net profit" metric very useful...

. In other words, NOPAT represents the company's operating profit that would accrue to shareholders (after taxes) if the company had no debt.

Another fully equivalent expression is

NOPAT = AdjEBIT - CashOpTax

where:

• AdjEBIT represents adjusted earnings before interest and taxes (adjusted EBIT)
• CashOpTax represents cash operating taxes.

or

NOPAT = (1-Tax Rate)* EBIT

Earnings before interest and taxes

In accounting and finance, earnings before interest and taxes is a measure of a firm's profit that excludes interest and income tax expenses. Operating income is the difference between operating revenues and operating expenses...

NOPAT is frequently used in calculations of Economic value added

Economic value added

In corporate finance, Economic Value Added or EVA, a registered trademark of Stern Stewart & Co., is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors . Quite simply, EVA is the profit earned by the firm less the cost of...

 and Free cash flow

Free cash flow

In corporate finance, free cash flow is cash flow available for distribution among all the securities holders of an organization. They include equity holders, debt holders, preferred stock holders, convertible security holders, and so on....

.

Financing approach

Net income	500
- Interest income after taxes	50
Total profit after tax	450
+ Interest expense after taxes	100
NOPAT	550