How to calculate "Net operating profit"?

accounting Case Calculations Case Interview
Recent activity on Mar 09, 2018
2 Answers
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Anonymous A asked on Mar 08, 2018

Hi,

I was just wondering how to calculate the net operating profit of a firm. During university I only learned how to calculate the operating cash flow and do not know if there is a difference between these two?

I calculate operating cash flows like this:

Revenue

- Costs

- Depreciation

= EBIT

- TAX

= EBIAT

+ Depreciation

= Operating cash flows

Is this correct so far? I read that net operating profit is like EBIAT because in a calculation I read online they did not add depreciation again.

Thanks for helping me to understand this

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Vlad
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updated an answer on Mar 08, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Net operating profit (Or net Income) = EBIT - interest income - income taxes

You'll don't need EBIAT formula on the case interviews. Net income will be useful

Best!

(edited)

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Angelo on Mar 09, 2018

Hi, I think interest income can be generalized to "non-operating profits", while it can be before-tax or after-tax. If after-tax, I normally do a theoretical tax on the operating income only

Vlad on Mar 09, 2018

Angelo, that's why I am subtracting it in line with taxes. Btw, you will never have interest income in consulting cases

Andrea
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Content Creator
replied on Mar 09, 2018
Former BCG Principal and decision round interviewer

Explanation is correct, wanted to reassure that unless you were a financial analyst or in banking or consulting for the past few years this will likely not be asked at an MBB interview and you can ask for guidance on how to calculate.

hope it helps,

andrea

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Vlad

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McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
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