Question 2: Compute NOPAT Using Tax Rates From Tax Footnote

Question 2compute Nopat Using Tax Rates From Tax Footnotethe Income

Compute TJX's NOPAT for 2007 using its income tax footnote disclosure. (The Federal and State tax rate for 2007 as reported by TJX's tax footnote is: 39.0%). Round to the nearest whole number. 2007 NOPAT = $Answer

Paper For Above instruction

Introduction

Net Operating Profit After Tax (NOPAT) is a key metric used to evaluate a company's operating efficiency by measuring the after-tax profit generated solely from its core operations, excluding the effects of debt and non-operational income. Calculating NOPAT involves adjusting the company's net income for after-tax interest expenses and non-operational items, then removing the effects of leverage to focus on operational performance. In this paper, we will compute TJX's NOPAT for 2007 using its income tax footnote that indicates a combined effective tax rate of 39.0%, as well as analyze Nordstrom's profitability metrics based on their financial statements for 2010 and 2009.

Calculating TJX's NOPAT for 2007

To compute TJX’s NOPAT for 2007, we begin with the company's income from continuing operations before income taxes, which is $1,246,848 (in thousands). From this, we subtract the income tax expense, reported as $470,092, to derive the net operating profit before taxes, but for NOPAT, the focus is on operating income excluding interest expenses and non-operational items. Given that interest expense is reported as $15,566, and considering the company's tax footnote indicating a 39.0% tax rate, we adjust the pre-tax operating income accordingly.

Step 1: Calculate Operating Income

Income before tax from continuing operations: $1,246,848

Interest expense (since interest is a financial cost): $15,566

Interest income is not specified separately, but interest revenue is implied to be net of interest expense, so for simplicity, we accept the given operating income as a base for adjustments.

Step 2: Adjust for taxes to derive NOPAT

We multiply the operating income by (1 - tax rate) to estimate after-tax operating income (NOPAT). The effective tax rate from the footnote is 39.0%.

NOPAT = Operating Income x (1 - Tax Rate)

Operating Income is considered as income before taxes, so:

NOPAT = $1,246,848 x (1 - 0.39) = $1,246,848 x 0.61 ≈ $760,506.

Final Calculation

Rounding to the nearest whole number: NOPAT ≈ $761,000.

Conclusion

The calculated NOPAT for TJX in 2007, based on the provided income statement and the 39.0% tax rate from the tax footnote, is approximately $761 million. This measure facilitates comparison of operational efficiency across periods and companies by excluding the effects of leverage and non-operational items.

References

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