what is difference between Net Operating profit and operating profit?

CFA Level II
#1

ROIC = Net Operating profit less tax / invested capital

ROCE= Operating profit / Capital employed.

what is the difference?

#2

I think it’s net operating income for both equations. I believe the difference in the tax peice for both equations:

Net Operating profit: Sales - COGS - Non-operating profits (EBIT)

Net operating profit after tax (NOPAT) (EBIT * (1-tax rate))

Therefore:

ROIC = NOPAT / Investest capital

ROCE = Net Operating Profit / Capital Employed

#3

Yes, that’s it…NOPAT which is ebit - taxes is used, I believe, to remove distortion from differing amounts of operating leverage and capital structure

#4

Hi Galli,

Thanks for your reminding me of ROIC and ROCE. But I think your EBIT calculation is not correct. We don’t need to subtract non-operating profits to compute EBIT.

EBIT = Revenue - COGS - Operating expenses - Depreciation & Amortization (investopedia)

#5

Yep that’s my mistake… Sorry.

#6

Hello,

I’m not sure whether does this help/add value to the discussion.

Though operating profit and EBIT are used interchangabely in most context; there lies a difference between both. The latter is after accounting for non-operating items.

Ernest

#7

Thank you Ernest. Your support is very appreciated.