After Tax Operating Income (ATOI)

After all, taxes are collected, after-tax operating income (ATOI) is the income of a corporation or organization operating. The non-GAAP calculation excludes all after-tax gains or costs such as impacts from adjustments in accounting. Because it is not a part of GAAP; after-tax taxable profits, net operating profit after tax (NOPAT) is somewhat close in nature to.

The formula for ATOI is:

ATOI = (Gross Revenue – Operating Expenses – Depreciation) – Taxes

Where operating income is (gross revenue – operating expenses – depreciation), also known as the pre-tax operating income (PTOI).

ATOI is more useful to investors as it excludes the impact of taxes and other one-off things which may distort operating revenue. A firm’s profit and loss statement indicate for a period of time its operating and non-operating revenue and expenditures. A firm’s operating income is determined by the core market from which the company receives revenue.

Operating income measures the amount of profit realized from a business’s operations. The formula for operating income is:

Operating Income = Gross Income – Operating Expenses – Depreciation

Where:

The gross income is the gross margin of the business, i.e. the income generated by the business after the Cost of Goods Sold (COGS) accounting. This is the income that occurs until all the costs are subtracted in the first half of the profit and loss account.

Operating expenses are expenditures above the value of the goods sold and the costs of production that include sales expenses, interest expenses, general and administrative expenses, or miscellaneous expenses.

Depreciation costs are the average amount of depreciation sustained on an asset for a given time period. The balance sheet depreciation number is the cost incurred over a month or a year whereas the balance sheet depreciation is the cumulative depreciation.

ATOI could be a measure of a company’s operating efficiency because it only takes into consideration expenses that are directly associated with ongoing business operations. It’s simply the operating income (or loss) generated by an organization after factoring within the effect of taxes. In effect, it’s earnings before interest and taxes (EBIT), adjusted for taxes. Investors and creditors within the business use operating income to judge the efficiency and profitability of the business.

After-tax operating revenue (ATOI) is an estimate of after-tax cash flows without the debt tax benefit. A business that has no debt can get its ATOI equal to its net income after tax (NIAT). Hence, there’s no benchmark figure for the ATOI, and no “high” or “low” amount; therefore, the ATOI should be compared with the previous years’ figures to come back to a customary amount that they’ll base the worth on. Because of its non-GAAP nature, what’s included and excluded within the measure differs across companies and industries; therefore, it’s important to know how the corporate under analysis got hold of its ATOI value. The ATOI actually measures the full operating efficiency of a corporation since the calculation takes into consideration the expenses that are directly associated with the operations of the business.

 

Information Sources:

  1. corporatefinanceinstitute.com
  2. investopedia.com