Meaning and calculation
NOPAT is an analytical measure of operating profit after tax. It is used in models that need to separate operating performance from the chosen debt structure. In a simplified model, operating profit is multiplied by the portion that remains after a notional tax rate. A real calculation may require additional adjustments.
If the model sets operating profit at 100 thousand roubles and uses a purely educational tax rate of 20%, NOPAT is 80 thousand roubles. The stated percentage is an assumption for the example, not the current rate of any particular tax. A company’s actual tax expense may differ because of accounting and transaction-specific factors.
Limits and uses
NOPAT is not net income and is not the amount of cash that can be distributed to owners. It is often used when calculating ROIC and cash flows for business valuation. Tax assumptions, the composition of operating profit and the cost-of-capital model must be aligned; otherwise, a comparison can create an appearance of precision without economic meaning. Related reading: [financial statement adjustments](/guides/financial-statement-adjustments/), [EBIT](/glossary/ebit/) and [ROIC](/glossary/roic/).