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(1) Forecast NOPAT for the company for at least 10 years. Normally, the analyst would use the fundamental forecasting techniques we explored in Strategic Forecasting
(1) Forecast NOPAT for the company for at least 10 years. | ||||||||||||
Normally, the analyst would use the fundamental forecasting techniques we explored in Strategic Forecasting (Workbook 9) and others to create these forecasts. | ||||||||||||
Net Operating Profit After Tax (NOPAT) is a method of assessing a company's operating efficiency without considering it's leverage. | ||||||||||||
NOPAT is the amount of cash a company could theoretically distribute to it's shareholders if it had no debt. | ||||||||||||
NOPAT is the operating profit of the firm after tax profits earned before interest payments. | ||||||||||||
NOPAT = EBIT * (1 - t), where t=tax rate | ||||||||||||
A DCF uses an adjustment to NOPAT to add back the non cash expenses created by accounting accruals. | ||||||||||||
Cash NOPAT = NOPAT + Depreciation + Amortization | ||||||||||||
To forecast Cash NOPAT: | ||||||||||||
- forecast EBITDA for the ten plus year period | ||||||||||||
(some may simply forecast EBITDA, while others as below may use a top line growth forecast and a profitability forecast) | ||||||||||||
- apply a cash tax rate assumption |
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