NOPAT- Add back the depreciation expense?

Hi there,

NOPAT is EBIT (1-t). Do we need to add back the depreciation expense since we removed it to come up with the actual value of the operating cash flows after tax?


Yes, starting from EBIT you need to add back the full amount of depreciation:

OCF =EBIT * (1 - t) + D&A + ∆ NWC

However, starting from EBITDA you only add-back the depreciation tax-shield:

OCF =EBITDA * (1 - t) + t * D&A + ∆ NWC

D&A is a non-cash item and has to be cleared out in any CF calculation.