Net Operating Profit After Tax (NOPAT) & NOPAT Margin

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Net operating profit after-tax (NOPAT) is the unlevered, after-tax operating cash generated by a business. It represents the true, normal and recurring profitability of a business. GAAP earnings or, even worse, non-GAAP earnings, are highly unreliable and are subject to misleading management manipulation.

As the numerator in our return on invested capital (ROIC) calculation, NOPAT is a very important value, and we place a great deal of importance on getting it right. Figure 1 provides the simplified formula for calculating NOPAT.

Figure 1: How to Calculate NOPAT – Simplified

Sources: New Constructs, LLC and company filings

When we calculate NOPAT, we make numerous adjustments to close accounting loopholes and ensure apples-to-apples comparability across thousands of companies. A company shouldn’t be able to hide its true performance, such as hidden, unusual losses.

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