For companies with no debt and thus no interest expense, NOPAT is equal to net-profit-1. In other words, NOPAT represents the company's operating profit that would accrue to shareholders (after taxes) if the company had no debt.

See also nopat

Instead of dividing net income by assets, often the interest expense is added back to net income. An alternative measure is thefore:

ROA = NOPAT / total assets

where NOPAT is net operating profit after tax, which is computed as net income plus the interest expense x ( 1 - tax rate).

NOPAT shows the profitability of all assets (excluding the cost of financing), but including the 'tax shield' on the interest expense (because interest expense is tax deductable).

This is considered to be more precise than dividing net income by assets.

Return on equity is a similar ratio, where net income is divided by shareholders' equity. It shows the percentage return that the company has made on its equity.