Thompson Finance Formulas

NOPAT stands for

Net Operating Profit After Tax

ROIC stands for

Return on invested capital

ROIC (formula)

NOPAT / Invested Capital

Invested Capital (formula)

Total Debt + Total Equity - Cash and Cash Equivalents

NOPAT (formula)

Operating Income * (1-tax rate)

Operating Profit

= Rev. - COS - Dir. Exp - Ind. Exp

Return On Assets (formula)

= net income / total assets * 100

Net Income (formula for TMCC)

= Rev. - COS - Dir. - Ind. + Oth. Inc. - Oth. Exp - Tax

PAD Profit After Direct (formula)

= Rev. - COS - Dir. Exp.

PBT Profit Before Tax (formula)

= Rev. - COS - Dir. - Ind. + Oth. Inc. - Oth. Exp

ROIC (focus)

ROIC focuses on the profitability relative to the capital that has been invested into the company, excluding non-operating assets like excess cash.

ROA (focus)

Evaluates the profitability relative to the company’s total asset base, including both current and non-current assets.

ROIC vs ROA (key difference)

ROA is useful for assessing overall asset efficiency, while ROIC is more relevant for evaluating the return on capital invested in the business operations.

Non-Operating Asset (definition)

An asset that is not essential to the ongoing operations of a business. These assets don’t directly contribute to the company’s core business activities, but can still hold significant value.

Examples include investment properties, marketable securities, vacant, land for of our vehicles, not used for business.

Marketable securities (Definition)

Financial instruments that can easily be converted into cash due to their high liquidity. They are typically short-term investments that companies and investors hold to manage their cash flow needs.

Examples include stocks, bonds, treasury, bills, commercial, paper, certificates of deposit (CDs), and mutual funds.