Is it only made up of the fixed capital investment and increase in working capital? Or is that wrong all together
In equity it appears to be NWC + net fixed assets, but in corporate finance it appears to just be the initial investment that gets depreciated each year
Any takers?
Re-post…thanks ahead of time for the help!
Look back several days. There are a lot of threads on this. We never really came to a conclusion on what Invested capital is. For both MVA and EVA.
As far as I’m concerned, I’m using book value of ALL interest bearing debt + BV of ALL equity. Using this for both calculations. So include Retained earnings in equity. Don’t include accounts payable in debt.
Someone please correct me if I’m wrong. I spent way too much time on this the other day and finally just had to move on.
I think you get different Invested Capital in Corp Fin and Equity is because you are valuing different things.
In Corp Fin you are valuing a project, so the Inv Cap is the initial investment that gets depreciated every year.
In Equity you are valuing the whole company so you should look at the combo of WC and FA, which is funded by the combo of debt and equity.
Conceptually they are the same if the company does only 1 project.
Again, Schweser does a horrible job of explaining things, this is my own conjecture so would love some one to confirm or contradict.
I’m really talking about equity in my above post. By the way, schweser gives that Net fixed assets + WC defintion. That is not found in CFA, so I’m not planning on using it.
Yeah that is what throws me, the NFA + NWC…would u guys use the initial working capital investment as part of capital for corporate finance, or just the fixed investment outlay that gets depreciated?
Maybe as a CPA I just look at it differently. But think how a Company can FUND a project. Either I put in Equity and Borrow Money (and use those sources) or I put in Money and Covert it into Assets (Both Fixed and Current) . In both cases you are excluding current liabilities and using the capital structure of funds available.
A = L + OE.
Fixed Capital + Net Working Capital (which is CA - CL) should theoretically equal Interest Bearing Debt + Equity . It’s also “adjusted” for non-operating cash.
If anyone cares to tell me why I’m wrong/ why everyone is confused, please let me know.
Agree with this. Not usually the case, though. I just know we’re going to get a long, 2 page balance sheet and be asked to find econ profit. Hoping it’s straightforward!
ok thanks guys i appreciate it. yup hopefuly its straightforward, unlike schweser which i love but it can be contradictory at times