NOPAT is the after-tax operating cash generated by the business, excluding unusual losses and gains, financing costs, goodwill and other non-cash items. It can be calculated two mathematically equivalent ways:
Figure 1: Formulae for NOPAT
Source: New Constructs, LLC
Below are the primary accounting distortions in reported financial statements that require economic translation and adjustment for the NOPAT calculation.
- Hidden unusual items from the MD&A and footnotes
- Unusual items found on the income statement and statement of cash flows
- Non-operating and unusual taxes
- Off-balance sheet debt
- Income from Unconsolidated Subsidiaries
- Minority Interests
- Restructuring/non-recurring charges
- All Non-operating Items below EBIT
- All After-tax Items
- Unusual items hidden in pension expenses
- Abnormal assumptions that affect stock option and pension expenses
- Contact us to learn more.
NOPAT Margin is equal to NOPAT/Total Operating Revenues.