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 as a comparison tool for two or more entities falling under the same industry differently leveraged. If the company has raised funds by 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
How to Calculate using Calculator
The user has to insert the following data into the calculator, and a simple click will provide the instant result of a calculation.
Operating Profit
The operating profit of a company includes the revenue from operations only deducted from operating expenses that can be directly associated with the operations. All financing and investing activities related to 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 Profit | 80,000 |
| Expenses: | |
| Employees Benefit Expenses | 23,000 |
| Rent & Overhead | 10,500 |
| Depreciation | 15,200 |
| Operating Profit | 31,300 |
| Tax rate | 35% |
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 a company operating under the same industry, which may have a different level of debt. 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 their 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.
Also Read: Net Operating Profit after Tax (NOPAT)
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 into the 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.
