It stands for net operating profit after tax. It is an entity’s after-tax operating income assuming that it had no debt in its capital structure (and hence, no interest expense). NOPAT is a measure of profitability that is used for ease of comparability across entities by eliminating the effect of an entity’s capital composition on its profitability.

It involves profitability calculation taking into consideration only the core operations and activities, net of taxes.

NOPAT is calculated using the following formula:

Net operating profit after taxes (NOPAT)= operating income * (1 – applicable tax rate)

NOPAT= (sales – operating expenses) x (1- [tax expense/pretax profit])

NOPAT is a key ingredient in calculating multiple financial indicators and measures including return on net operating assets (RNOA) and economic profit.