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1) Link the definitions of NOPAT and FCF. Invoking extreme simplicity, how would you describe NOPAT...

1) Link the definitions of NOPAT and FCF. Invoking extreme simplicity, how would you describe NOPAT to a colleague? How would you map FCF with respect to NOPAT, net fixed asset investment, and net working capital?

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Answer #1

NOPAT= net operating profit after tax and fcf= free cash flow

by definition free cash flow(FCF) is the availibility of cash after investments are made. In other words fcf can be defined as NOPAT less net change in working capital and change in fixed assets.

In laymans language a NOPAT is a company income from operations if it had no debt which means no interest expense.

NOPAT
LESS CHANGE IN NET WORKING CAPITAL
LESS CHANGE IN NET FIXED ASSSET
= FREE CASH FLOW

therefore

FCF= EBIT(1-TAX RATE)- CHANGE IN NET WORKIN CAPITAL + DEPRICIATION AND AMORTIZATION-CAPEX

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