Net Operating Profit
Profit literally means the amount of money gained by the company. Similarly Net Operating Profit After Tax (NOPAT) or simply NOP is the amount of money that the company or the organization has gained during its operational time period under consideration.
How is NOP calculated?
It is calculated by deducing the operating expenses and the total cost for which the goods are sold from the total profit of the company. Other expenses like investments made on other firms, interests paid on debts, start up cost, etc are not included for calculation.
NOPAT = (Operating Income) * (1 – Tax Rate)
The values like Operating Income, Tax rates, etc are generally found in the Income statements of the company. It is expressed as two separate values called NOP before Tax and NOP After Tax. It defines the earnings before and after deduction of interest and taxes respectively.
Can NOP be trusted to make investments?
NOP is an important parameter in measuring a company’s profit because it clearly states the ability of management in terms of its profitability. In general it defines the operational efficiency without clouding the actual number with other liabilities of the company.
While making an investment on a company, it is important to analyze its historical NOP data. Only through comparing the previous months and years NOP data, one can conclude on the performance of a company.
