CFA® Level 1: CFA® Level 1 Exam Preparation Resources

Net Operating Profit Less Adjusted Taxes (NOPLAT) and Total Cost of Capital

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This measure of value-added is closely related to the NPV technique. The annual performance of management is evaluated by comparing the firm's net operating profit less adjusted taxes to the firm's total cost of capital in dollar terms, including the cost of equity. It is known as:

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A. B. C. D. E.

C

In economic value-added (EVA) analysis, if the firm's net operating profit less adjusted taxes (NOPLAT) during a specific year exceeds its dollar cost of capital, it has a positive EVA for the year and has added value for its stockholders. If the EVA is negative, the firm has not earned enough during the year to cover its cost of capital and the value of the firm has declined.

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