馃攳
NOPAT vs Net Income | Are They Both Same? | Know the Top Differences! - YouTube
Channel: WallStreetMojo
[10]
hello everyone hi welcome to the channel
of WallStreetmojo watch the video
[16]
till the end also if you are new to this
channel then you can subscribe us by
[20]
clicking the bell icon friends today we
are going to learn a tutorial on Nopat
[24]
versus net income Nopat is basically
your net operating profit after tax so
[30]
let's get into this what exactly we are
going to discuss over here see if you
[36]
are an investor you have two options you
can look at the net income as every
[42]
investor does or you can become wise and check both the net income and the Nopat
[48]
that is your net operating profit after
net operating profit after tax right so
[54]
how does this net operating profit after
tax has been calculated in the net
[59]
income first the net income is
calculated by deducting
[62]
all the expenses incurred during the oh
and that includes all the non-cash
[67]
expenses that includes your depreciation
also so your net income includes all the
[74]
expenses that includes non-cash but if
we talk about NOPAT over here NOPAT on
[80]
the other hand is calculated by using
operating income this is really very
[86]
important now how a business is doing
operationally can be described better by
[92]
NOPAT then the net income even if there
is a key difference between net income
[99]
and NOPAT looking at each of them
would give the investor the clarity that
[103]
they need to decide whether to invest in
a company or not so in this particular
[109]
tutorial we are going to look at top
differences between NOPAT versus net
[113]
income and why you as an investor should care so let's discuss this difference
[122]
between the NOPAT and net income the
first and the foremost thing as you can
[125]
see NOPAT is calculated on operating
income that is all those which are non
[134]
recurring in nature won't be included in
this to find out the operating
[138]
efficiency of the company net income
however is calculated by deducting or
[144]
the expenses that includes your non-cash
expenditures non-cash revenues so it
[152]
give me anything now the second so the
first was the inherent meaning the
[157]
second that we are going to discuss is
the application of the same over here
[161]
NOPAT is used to understand the
operational efficiency over here
[166]
it was operational operating efficiency
of the company operational efficiency
[171]
without the leverage that is we are not
going to really include the interest
[176]
portion so net operating profit after
tax so interest without the leverage net
[183]
income is the most common measure of
profitability of the company after
[187]
deducting everything you get your net
income is interest expense adducted know
[193]
that's why it has been said over here
operational efficiency without leverage
[197]
and over here width leverage so that's
why no interest is deducted over here
[202]
and yes interest is deducted net income
is after everything tax all the
[208]
operating expenses income let it be tax
let it be
[211]
interest let it be depreciation everything
is deducted and then after you get your
[215]
net income the next difference
importance NOPAT doesn't take interest
[222]
expense on debt or on debt into account
so that's what we discussed about so the
[227]
importance is that the interest expense
is not taken into consideration so we
[231]
will be able to see the DSCR ratio over
here we'll be able to analyze for the
[237]
debt holders that how far the company
will be able to repay the the principal
[243]
plus interest
so NOPAT doesn't take interest expense
[245]
on debt into account net income is
deducted by deducting every possible
[250]
expense from the revenue now
specific use to NOPAT is used for
[256]
the investors and over here net income
is like for everyone it's like come
[261]
everyone is invited over here it's like
shareholders investors external
[266]
stakeholders and so on and so forth but
NOPAT is specifically useful for the
[271]
investors now how it has been calculated
if we NOPAT is calculated by
[277]
the operating income that is your earning before
[280]
interest in tax into 1 - tax that
means you are not you are basically
[288]
doing a post tax operating income so net
operating profit after tax but interest
[295]
is not deducted so operating income is
what you are earning before interest and
[300]
tax and post that you are just
multiplying one - tax that is your post
[306]
tax income without deducting interest
that is NOPAT your net income is your
[314]
net profit less the interest expense
less the taxes so net in net profit this
[320]
is let's say this is your earning before
interest in tax so if you deduct
[324]
interest you get pawning before tax that
is an EBT if you deduct tax then you get
[329]
earning after tax that is your Pat or EA
T and then you deduct dividend paid to
[334]
the preference shareholders post that
if there is dividend that is paid to
[338]
equity shoulders and that is net income
now used to to compare the performances
[344]
between the 2 firms usually
the firms do that and over here to
[349]
evaluate the overall company's
performances now
[354]
the stake leverage into account no we
have already understood yes
[359]
no interest yes interest now let's
understand the key differences in NOPAT
[365]
versus net income see there are many
differences between NOPAT net
[368]
income but let's have a look at the key
differences see NOPAT as we know that
[373]
is a measure of what operating
efficiency we now know very well for the
[379]
investor if investor know that net
income they can asserting NOPAT easily
[386]
but if they know NOPAT to a certain net
income they need not to know the
[392]
interest rate on the debt second while
computing the NOPAT interest expense on
[399]
debt are not deducted while asserting
net income interest expense on debt are
[404]
deducted if you talk about no pad no fat
helps the investors make comparison
[409]
among the forms and operating efficiency
net income helps the investors get
[413]
profitability ratios of the forms but
having a glance at net income does not
[419]
create value since to find out net
income even non-cash expenses like
[424]
depreciation is also deducted so that
was your third point the fourth one in
[429]
case of NOPAT the actual sales over
here I mean to say the actual tax
[435]
expenses are calculated but in net
income the tax expenses get
[440]
significantly reduced due to the effect
of the leverage now looking at the one
[446]
ratio will not offer the investor
sufficiently so each investor should
[453]
look at both the NOPAT and the net
income to get the idea of the
[459]
profitability actual taxes to be paid
interest expense on debt in the effect
[463]
only leverage on the profitability so
you can see calculating the NOPAT is no
[471]
brainer on the other hand ascertaining
net income needs a bit more time and
[477]
calculation so after learning this
can make a final conclusion that as an
[483]
investor it's wise to not become a 1 id
beer you will gain much more insight
[491]
into a company when you look at all the
aspects of the profitability of the
[495]
company so first you should look at all
the 4 financial statements then you
[501]
should look at the net income NOPAT
net cash inflows and outflows net
[506]
revenues return on total assets return
or equity and return on capital investor
[512]
and so on and so forth
so that's it for this particular topic
[516]
if you have learned and enjoyed watching
this video please like and comment on
[520]
this video and subscribe to our channel
for the latest updates thank you
[524]
everyone
Cheers
Most Recent Videos:
You can go back to the homepage right here: Homepage