NOPLAT (Net Operating Profit Less Adjusted Taxes)

Definition

NOPLAT is Net Operating Profit Less Adjusted Taxes. It is a measurement of profit which includes the costs and the tax benefits of debt financing. In other words, it can be said that NOPLAT is the earnings before interest and taxes after making the adjustments for taxes. It is a firm’s total operating profit where adjustments for taxes are made. It shows the profits that are generated from the core operations of a company after making the deductions of income taxes which are related to the company’s core operations. For the creation of DCF models or the discounted cash flow models, often NOPLAT is used.

Overview

The effects of capital structure are removed by NOPLAT so it is preferred to net income. NOPLAT is somewhat similar to EVA model in the way that economic profit is derived by deducting the monetary cost of all types of capital including equity and debt from NOPLAT.

It is important for an analyst to make proper adjustments related to inter-temporal tax differences, non operating income taxes, amortization and others, but many times, a simple formula to reflect de-levered profit is applied by eliminating the effects of debt tax shield.

Operating earnings = After-tax operating profit + Interest paid * (1 - tax rate)

NOPLAT is also called net operating profit after tax (NOPAT). NOPLAT is calculated by the following formula:

NOPLAT = Operating Income x (1 – tax rate)

NOPLAT is an important measure in different types of financial analyses because it makes use of only operating income and provides a clear picture of operating efficiency. This is crucial as net income is reduced by interest payments on debts and which further reduce the tax expense of the company. It is also used for calculating EVA.

Example for calculating NOPLAT

To calculate NOPLAT, let us take the income statement of Company ABC:

Company ABC income Statement for the year 20xx

Revenue	$ 1,200,000
Cost of goods sold	$ 600,000
Labor	$ 400,000
General $ administrative expenses	$ 100,000
Operating income	$ 100,000
Interest expenses	$ 20,000
Taxes (30% tax rate)	$ 30,000
Net income	$ 50,000

Therefore, NOPLAT = $100,000 x (1 – 0.30) = $70,000