NOPLAT

FCF = NOPLAT + Noncash operating expenses - Investment in invested capital 

The previous formulas will be further explained throughout the chapter. To sum up what has been described so far though, companies that can increase ROIC or maintain a steady trajectory of increasing ROIC above the cost of capital will generate value. As an example in 

The perpetuity growth method assumes that the company will continue its historic business and generate FCFs at a steady state forever. Value for a company is driven by the amount of its invested capital, ROIC, growth in revenue, and its cost of capital (WACC). WACC is weighted average cost of capital or the cost to the company for the capital it obtained from stockholders and lenders (equity and debt holders) and g is the growth rate of future FCFs. 

Net income differs when comparing two companies with identical operating performance that carry different amounts of debt. The company with more debt would show a lower net income. Remember that net income is the profit only available to equity holders. 

Operating profit (EBIT) then places both companies on an equal footing by measuring the difference in the amount of money the company receives from operations and the amount of money it spends on operating expenses. It excludes costs and benefits of debt financing and income taxes. 

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Unfortunately, the fractionating column you usually get is not a bubble-plate type. You have an open tube that you fill with column packing (see Class 3 Fractional Distillation ) and noplates. The distillations up this type of column are not discreet, and the question of where one plate begins and another ends is meaningless. Yet, if you use this type of column, you do get a better separation than if you used no column at all. It s as if you had a column with some bubble-plates. And if your distilling column separates a mixture as well as a bubble-plate column with two real plates, you must have a column with two theoretical plates. 

ROIC%=net operating profits less adjusted taxes (NOPLAT)/invested capital... 

To calculate ROIG and FGF, the balance sheet is reorganized to find invested capital and the income statement is reorganized to find NOPLAT The terms in the following equations are defined as ROIG is the return a company earns on each dollar invested in the business. NOPLAT is the after-tax profit generated from a company s core operations. Invested capital is the cumulative amount a company has... 

Net operating profit less adjusted taxes (NOPLAT), sometimes referred to as net operating profit after tax (NOPAT), is the after-tax operating profit— profit generated from a company s core operations,... 

Table 5.1 provides an example of how NOPLAT is found. NOPLAT is 2,400M and income available to investors is 2,426M after adding back in after-tax nonoperating income. 

Table 5.1 Abbreviated Income Statement, NOPLAT, and Income Available to Investors...

The income statement is used to calculate NOPLAT. Take operating profit (EBIT), earnings before interest and taxes, and then adjust EBIT for the impact of taxes. Analysts often adjust operating income further however, for our purposes, the following equation suits us well ... 

Just as NOPLAT identifies the profit for all investors, which includes all equity owners and all debt holders, free cash flow essentially does the same. FCF is the after-tax amount of cash flow, taking into account... 

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