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This NOPAT template shows you how to calculate the net operating profit after tax using the income statement.
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NOPAT stands for Net Operating Profit After Tax and represents a company’s 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. In this way, it’s easier to compare two companies in the same industry (i.e. one with no leverage and the other with significant leverage).
Simple form: Income from Operations x (1 – tax rate)
Long form: [Net Income + Tax + Interest Expense + any Non-Operating Gains/Losses] x (1 – tax rate)
Use of NOPAT in Financial Modeling
In financial modeling, Net Operating Profit After Tax is used as the starting point for calculating unlevered free cash flow (a.k.a.free cash flow to the firm FCFF).
The most common approach to valuation is to calculate a firm’s enterprise value (as opposed to its equity value) so that the capital structure of the business is ignored and only the firm’s assets are used for determining its value.
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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
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