Concept of Depreciation deduction before calculating operating income



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As per my knowledge, depreciation of machinery/CAPEX is done before appyling taxes. Also, the hypothetical deduction is added back to the NOPAT after tax calculation. For eg. To calculate NOPAT for pizza business, the pizza machine has to be depreciated(Straight-line) to arrive at Operating income, then taxes are deducted and then this depreciated value is added back to Operating income to arrive at Net operating profits after taxes. Please correct me if I am wrong.
Thanks a lot for Dezyre!

1 Answer(s)


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The deductions are added back only to calculate free cash flow and not calculate net operating profits.

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