Net operating profit after taxes

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Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2015 NOPAT is profits derived from a company's operations after cash taxes but before financing costs and non cash book keeping entries..

Sir why should we deduct interest( net of taxes) from PAT to get NOPAT.. I understood y we must deduct interest, Y we should deduct interest NET OF TAXES?? And not interest directly??

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

31 July 2015 Interest is an allowed expenditure for income tax calculation to neutralize tax effect on it interest net of taxes is added.

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Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2015 Neutralizing tax effect means?? Can u pls elaborate the explanation.. Thank u

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

31 July 2015 If you pay 10% interest on borrowing which will be allowed as expenditure for the purpose of tax working. Considering 30% tax saving the effective cost of borrowing is only 7%.
If you see cost of capital working for projects you will understand.

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Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2015 Thank you so much sir..it is very clear now

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