Do you subtract cash items from NWC to find invested capital in the context of EVA and MVA?
EVA = NOPAT - $WACC = EBIT(1-t) * (invested capital x WACC), where i think invested capital is just debt + equity. MVA = market value - book value? not sure where NWC comes in
Invested Capital = LT Debt + Equity or Invested Capital = NWC + Fixed Capital At least that’s what I have written down. MVA = MV - invested capital
My notes say: Invested capital = BV debt + BV equity = LTD + SH equity = NWC + NFA not sure if this means that nwc = ltd and sh equity - NFA but its def in the notes in the same area where MVA is introduced
come on, ny - you are stretching things a little too much with your posts. they are just saying sum of things is equal. Not that each indiv. item is equal to the other indiv item.
if it’s in the book it is what it is, but i don’t understand how invested capital = NWC + NFA. unless NWC is cumulative, this suggests that all capital invested in the business either purchased an asset or was used for current working capital. i guess my problem with this is that i don’t view NWC as cumulative as it’s usually a snapshot item on the balance sheet, whereas NFA is cumulative as it includes accumulated depreciation. whatever, NOPAT = EBIT(1-t) - $WACC x invested capital
yea i wasnt sure if the indiv items were the same, that seemed odd to me thats why i said i wasnt sure. but i do believe that those things are all equal, as i just doublechecked on page 293 in book 4. thanks cp.
they are equal all right - but at the SUM level. Not individual items. 100+20 = 90+30 = 80 + 40 the sum = 120. that is what I meant by saying you are stretching things a little too much.
I think for NWC, you need to exclude cash, notes payable, current portion of LTD and other cash equivalent. I would say, NWC = (Current Asset - cash - cash equivalent) - (Current Liabilities - current LTD - notes payable).
Also note that : 1. Invested capital = current book value of investment in any particular after deducting the depreciation (Used in context of EVA) 2. MV of Investment = PV of future cash flows (Used in context of Economic Income) Some how I always find this confusing. Can someone tell me if we finance a project with a mix of debt and equity, then the invested capital will be just the equity portion or the whole amount?