ROIC & FCF - start with EBIT or EBITA

The book McKinsey’s Valuation defines NOPLAT/NOPAT as EBITA - actual taxes. It then uses NOPLAT/NOPAT to calculate FCF & ROIC.

Mauboussin’s book Expectations Investing calculates NOPLAT/NOPAT as EBITA - actual taxes.

Damodaran’s book Investment Valuation however defines it as EBIT - actual taxes.

Why this inconsistency between 3 well respected books?

Other than amortization they look the same. Since companies no longer amortize intangibles the ‘A’ is not really relevant anymore so they are virtually the same now.

Acquired intangibles are still amortized, right? That will make a difference.

You are correct. I was referring to goodwill. Acquired intangibles are still amortized.

So what is the right way to calculate NOPAT/NOPLAT to be used for calculating ROIC & FCFF? Do we start with EBITA or EBIT?

That’s better.

I was taught corporate finance by both McKinsey and Damodoran.

Back then, goodwill was still amortised but wasnt tax déductible. And because goodwill was the lions share of amortisation, the idea was to tax effect EBITA to get to NOPAT. Thats in any event what McKinsey was teaching us.

Nowadays, its probably cleaner to use EBIT, and treat tangible and intangible capex the same, as Damodoran says.