The purpose of dividing accounting items into operating and financing related activities is to obtain a better knowledge of the different sources of value creation in a firm. For example, investors consider operating profit as the primary source of value creation and in most cases they value operations separately from financing activities. Lenders consider operating profit as the primary source of debt servicing. Therefore, analysts spend time on reformulating the income statement and balance sheet so that these statements clearly distinct between operating and financing activities.
Net Operating Profit After Tax and is measured as earnings before interests and tax (EBIT) less tax (on EBIT).
Invested capital represents the amount a firm has invested in its operations and which requires a return.
A number of items need to be carefully considered before it can be decided if they belong to operations or financing. Examples include: