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| '''Invested capital''' represents the total cash investment that [[shareholders]] and [[debtholders]] have made in a company. There are two different but completely equivalent methods for calculating invested capital. The ''operating approach'' is calculated as: | | Oscar is how he's called and he completely enjoys this name. One of the things he loves most is ice skating but he is struggling to discover time for it. For a while I've been in South Dakota and my parents live close by. Hiring is her working day occupation now and she will not change it anytime soon.<br><br>Stop by my homepage - [http://raybana.com/chat/pg/profile/GIsaachse raybana.com] |
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| Invested capital = operating net working capital + net property, plant & equipment + capitalized operating leases + other operating assets + operating intangibles − other operating liabilities − cumulative adjustment for amortization of R&D
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| Equivalently, the ''financing approach'' is calculated as
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| {|
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| | Invested capital = || total debt and leases
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| | align="right" | + || total equity and equity equivalents
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| |-
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| | align="right" | − || non-operating cash and investments
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| |}
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| In symbols:
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| :<math>K = D + E - M \, </math>
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| Invested capital is used in several important measurements of financial performance, including [[return on invested capital]], [[economic value added]], and [[free cash flow]].
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| == Numerical example ==
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| {{Empty section|date=July 2010}}
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| == Approach ==
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| === Operating approach ===
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| {| cellpadding="0" cellspacing="0" width="500"
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| |-
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| | Current operating assets || align=right |2,000
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| | (Non-interest bearing current liabilities)
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| | align="right" style="border-bottom: 1pt solid" | (800
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| | style="border-bottom: 1pt solid" | )
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| |-
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| | Net working capital
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| | align="right" style="border-bottom: 1pt solid" | 1,200
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| | style="border-bottom: 1pt solid" |
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| |-
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| | || align=right |
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| | Net property, plant, and equipment || align=right |4,800
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| |-
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| | PV of non-capitalized lease obligations || align=right |400
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| |-
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| | Goodwill and intangibles
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| | align="right" style="border-bottom: 1pt solid" | 1,600
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| | style="border-bottom: 1pt solid" |
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| |-
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| | || align=right |
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| | Invested capital
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| | align="right" style="border-bottom: double" | 8,000
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| | style="border-bottom: double" |
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| |}
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| === Financing approach ===
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| {| cellpadding="0" cellspacing="0" width="500"
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| | Short term debt || align=right |300
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| |-
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| | Current portion || align=right |500
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| | Long term debt || align=right |2,300
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| |-
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| | PV of non-capitalized lease obligations
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| | align="right" style="border-bottom: 1pt solid" | 400
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| | style="border-bottom: 1pt solid" |
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| |-
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| | Total debt and leases
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| | align="right" style="border-bottom: 1pt solid" | 3,500
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| | style="border-bottom: 1pt solid" |
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| |-
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| | || align=right |
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| | Common stock || align=right |600
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| | Additional paid-in capital || align=right |1,900
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| |-
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| | Retained earnings || align=right |1,500
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| |-
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| | Bad debt reserve || align=right |200
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| |-
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| | LIFO reserve || align=right |500
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| |-
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| | Capitalized R&D expense || align=right |1,000
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| |-
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| | Capitalized marketing expense
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| | align="right" style="border-bottom: 1pt solid" | 300
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| | style="border-bottom: 1pt solid" |
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| |-
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| | Total equity and equity equivalents
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| | align="right" style="border-bottom: 1pt solid" | 6,000
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| | style="border-bottom: 1pt solid" |
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| |-
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| | align="right" style="border-bottom: 1pt solid" |
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| | style="border-bottom: 1pt solid" |
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| | (Marketable securities)
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| | align="right" style="border-bottom: 1pt solid" | (1,500
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| | style="border-bottom: 1pt solid" | )
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| |-
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| | || align=right |
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| | Invested capital
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| | align="right" style="border-bottom: double" | 8,000
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| | style="border-bottom: double" |
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| |}
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| == References ==
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| * Brealey, Myers, and Allen. ''Principles of Corporate Finance'', 8th edition (McGraw-Hill/Irwin, 2005).
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| * G. Bennett Stewart III. ''The Quest for Value'' (HarperCollins, 1991).
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| [[Category:Financial ratio]]
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| [[Category:Management accounting]]
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Oscar is how he's called and he completely enjoys this name. One of the things he loves most is ice skating but he is struggling to discover time for it. For a while I've been in South Dakota and my parents live close by. Hiring is her working day occupation now and she will not change it anytime soon.
Stop by my homepage - raybana.com