Question

Balance sheet                                                                                          

Items	2019	2018
Cash	8,313	11,604
Marketable securities	696	618
Account receivables	23,795	30,563
Inventory	1,619	1,682
Prepaid expenses	3,997	4,678
Net Fixed Assets	96,457	68,764
Investment in AB Co. stocks	17,309	5,473
Account payables	24,600	21,372
Wages and salaries payable	13,101	16,855
Bond payable (10 yrs.)	54,102	35,605
Notes payable (3 yrs.)	39,398	32,621
Total shareholders’ Equity Capital	20,985	16,929

  B.   Income statement

Items	2019	2018
Revenues	77,147	79,591
Cost of goods sold	40,659	42,655
Salaries & benefits	11,786	13,197
Rent & other expenses	4,412	5,000
Deprecation	8,780	6,674
Interest	1,344	723
Taxes (23%)	731	2,619
Net Income	9,435	8,723

    

  Required?

A. Compute and interpret the net-operating profit after tax (NOPAT) of the company for 2018 and 201

Answer 1

 

NOPAT = (Net Income + Tax + Interest + Non-operating gains/losses)*(1- Tax rate)

Informations given in the question are as follows

Items	2019	2018
Net Income	9,435	8,723
Interest	1,344	723
Taxes	731	2,619
Tax Rate	23%	23%
NOPAT	(9,435 + 1,344 + 731)*(1-0.23) = 14,948	(8,723 + 723 + 2,619)*(1-0.23) = 92,900

Interpretation:

Company has low NOPAT in year 2019 as compared to 2018 this shows the reduction in the operating efficieny of the company.

And also the performance of compnay from its core operation is less in 2019.

NOPAT is a profitability measure, that measures operating efficiency.

NOTE:

In this question the Tax Rate is = 23% but if we will find it out by calculation, it would be different.

It is advisable, simply put the data given in the question in the formula and calculate NOPAT.

Do not try to calculate tax rate if already given in the question, it will not get matched.

better to use the data as readily available.