Net Operating Profit After Tax Calculator

Net Operating Profit after Tax

The net operating profit after tax calculator calculates the after-tax profit from the operations of a company. To clarify, net operating profit is net earnings generated from the core business operations of the company. And it is a difference between the revenues from operations and expenses which are directly attributable to such core activities of the business. NOPAT can be used a comparison tool for two or more entities falling under the same industry differently leveraged. If the company has raised funds by the way of debt, then its cost (that is, interest expense) is not included in the calculation of net operating profit after tax. Basically, net operating profit after tax is the net income of a company considering it as an unleveraged one.

Similarly, we ignore all non-operating income and expenses from its calculation.

Formula for Calculating Net Operating Profit after Tax

For calculating net operating profit after tax, consider the following formula:

Net Operating Profit after Tax = Operating Profit * (1 – Tax Rate).

About the Calculator / Features

The calculator effortlessly calculates the result of net operating profit after tax by providing the following details in it.

  • Operating profits
  • Tax rate

Net Operating Profit after Tax Calculator

Net Operating Profit After Tax Calculator

How to Calculate using Calculator

The user has to insert following data into the calculator and a simple click will provide the instant result of calculation.

Operating Profit

The operating profit of a company includes the revenue from operations only deducted by operating expenses that can be directly associated with the operations. All financing and investing activities related income and expenses are excluded.

Formula for calculating operating profit is as follows:

Operating Profit = Gross profit – Operating Expenses

Tax Rate

It is the rate of tax applicable to the company for which you are calculating net operating profit after tax.

Example of Net Operating Profit After Tax

Let us try to understand this concept with the help of an example. Following are the details of Super Rich Pvt. Ltd.:

Particulars($)
Gross Profit80,000
Expenses:
Employees Benefit Expenses23,000
Rent & Overhead10,500
Depreciation15,200
Operating Profit31,300
Tax rate35%

NOPAT = 31,300 * (1 – 0.35) = $20,345

Interpretation of Net Operating Profit after Tax

NOPAT represents how efficiently a company carries out its core business operations. It is not wrong to say that net operating profit after tax is the profit that can be used to distribute dividends to the shareholders assuming there is no debt in the company. It can be used for a comparison with the company operating under the same industry which may have a different level of debts. And thus the operating efficiency of firms is not vitiated by the impact of interest and debt levels.

It is important to note that NOPAT calculation is done mostly on a theoretical or proforma basis for financial modeling etc. This is to compare the operating efficiencies of firms across the industry without the influence of its capital mix/capital structure. As tax impact due to different levels of debt could show a substantial variation in same-size companies. Thereby, the operating efficiency comparison becomes difficult. So, to do away with the capital structure mix effect NOPAT is calculated. In other words, NOPAT is the profit available to all the stakeholders- debt holders, shareholders, investors, and so on.

Cautions

Since net operating profit after tax only considers the operating transactions of the company, it cannot be considered as a good metric for evaluating performance. It does not provide actual insight of company’s profitability. Since, no company can go without having some amount of debt, it becomes important to analyze the result after deducting the interest expenses. Also interest work as a tax shield for the company, hence, it becomes necessary to take net income into account rather than net operating profit after tax.

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Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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