Net operating profit after tax

Net operating profit after tax, or NOPAT, is a company's operating profit with the effect of taxes removed, but still calculated before any effect from how the business is financed.

It starts from operating income (EBIT) and applies a tax rate directly to that figure. This makes it different from net income, which already reflects interest expense and interest income and therefore changes depending on how much debt a company carries. NOPAT deliberately ignores financing, leaving a figure that reflects how the underlying business performs on its own.

NOPAT exists mainly to be compared against the total capital, debt and equity together, that a business has put to work. That comparison is what return on invested capital measures, which is why NOPAT rather than net income is used in its formula. Removing both the tax effect and the financing effect makes it possible to judge companies with very different capital structures on the same basis.