Guide to NOPAT and How It Differs From EBITDA
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What Is NOPAT?
Revenue: Revenue is the total sales generated by services and/or the sale of goods. It is how much money a company brought in. Cost of Goods Sold (COGS): COGS is any direct costs associated with the selling of goods or services. Common expenses associated with COGS include: Factory labor Freight Parts used during manufacturing/ production Raw materials Storage Wholesale price of goods Operating expenses (OPEX): Any costs associated with the day-to-day running of a company. Common operating expenses include: Advertising Equipment Depreciation Insurance Inventory Maintenance Marketing Office supplies Payroll Property taxes Rent Repairs R&D
How Does NOPAT Work?
What NOPAT Tells You
What Is EBITDA?
Interest: This refers to interest paid on debt, including various types of small business loans. EBITDA doesn’t include this because how much debt a company will vary depending on a company’s financing structure. Some companies are more leveraged than others and, as a result, have widely different interest expenses. To better compare the relative performance of different companies, EBITDA adds interest paid on debt back to net income. Taxes: A company’s tax burden is based on its structure, total revenue, and location. Therefore, two companies with the same amount in sales could pay very different amounts in taxes. Depreciation: Depreciation allows a company to spread out the cost of a physical asset over the course of its useful life (minus any salvage value). While depreciation is a very real cost, it can vary significantly from one firm to the next, depending on the historical investments it has made. Since this does not reflect a company’s current operating performance, EBITDA leaves it out of the equation. Amortization: Similar to depreciation, amortization is the process of spreading out the cost of intangible assets, such as patents, copyrights, and trademarks, over their useful life. Some companies have more costs associated with intangible assets than others. Once again, the mindset is that regardless of what those costs are, it does not reflect a company’s operational efficiency.
NOPAT vs EBITDA Compared
Both EBITDA and NOPAT are used to calculate the financial strength of a company. Interest from loans is not considered for both EBITDA and NOPAT. Both place value on a company’s profits from its core areas of business.
NOPAT is after taxes, whereas EBITDA is prior to tax payments. EBITDA also includes other non-operating income. NOPAT accounts for depreciation and amortization charges, while EBITDA adds them back.
Pros and Cons of Using NOPAT
NOPAT vs Unlevered Free Cash Flow
Example of NOPAT
3 Small Business Loan Tips
Generally, it can be easier for entrepreneurs starting out to qualify for a loan from an online lender than from a traditional lender. Lantern by SoFi’s single application makes it easy to find and compare small business loan offers from multiple lenders. Traditionally, lenders like to see a business that’s at least two years old when considering a small business loan. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.
Frequently Asked Questions
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