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Chapter 9

(W1) Adjustments to operating profit to calculate NOPAT

$
Controllable operating profit X
Add:

Accounting depreciation X
(does not represent true fall in value of assets in the period)

Increase in provisions X
(over prudence and not a cash figure)
Advertising, R&D, employee training X
(can capitalise since add value)
Operating lease payments X
(can capitalise since add value)
Non-cash expenses X
(not actual cash paid)
Deduct:

Economic depreciation (X)
(reflects true fall in value of assets in the period)
Decrease in provisions (X)
(over prudence and not a cash figure)
Amortisation of advertising, R&D, employee training (X)
(amortisation for the period)
Depreciation of operating lease payments (X)
(depreciation for the period)
Tax charge (X)
(want after tax profit)
Tax relief on interest, i.e. interest × tax rate (X)
(interest payments taken into account in WACC)
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NOPAT X

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