Easy to fathom, not so easy to calculate in practice. If doing the financing approach (ie. adding contributions for all providers of capital for which a return should be expected) do you add gross debt or net debt? The most intuitive approach is: Equity+interest bearing debt… You can also do CFA-type adjyustments such as add deferred taxed to equity etc. but I dont think cash should be deducted, right?
Invested capital = Total Debt and Leases + Total Equity and Equity Equivalents – Non-Operating Cash and Investments Total Debt and Leases will include Short Term Debt, Current Portion, Long Term Debt, PV of Non-Capitalized Lease Obligations
Yes you can google. But can you understand what you tryna say?
You can simply just use the operating working capital, Net PPE, operating leases, and other assets net of other liabilities. Also, you have to deduct on-going operating provisions.
I find it frustrating sometimes. I hope you are all junior analysts here. One of the important things that you need to learn in this darn industry is to answer the question you are being asked. If u dont know, its OK to say it. and shut the fcuk up. One guy pastes what he sees in google. THe other guy tells me about the other method. Can somebody plz. EXPLICITLY answer this darn question???
one of the …ing things you would have learnt in the industry was there are MANY WAYS TO SKIN A CAT in this industry, esp. in this industry. That is why you have so many …ing scandals floating around… One man’s kettle is another man’s pot. ( in terms of pot calling the kettle black). That is why you need to read the footnotes.
im …ing pissed off myself with these answers.
Not exactly sure if you are looking for the CFA answer, but this is how we do it at my firm… On the financing approach Non-operating cash should be included in invested capital. To find operating cash, this is usually max(Sales * 5%, Cash), but it depends on the situation the company is in. Deduct operating cash from total cash. This should be added on the financing side of IC. Also, when i say cash, this includes all non-operating investments (i.e. current & non-current investments, cash & COLI)
Sorry, “To find operating cash, this is usually max(Sales * 5%, Cash), but it depends on the situation the company is in.” Should actually be: “To find operating cash, this is usually min(Sales * 5%, Cash), but it depends on the situation the company is in.”
Thanks man. This is sort of ‘excess cash’ adjustment - rationale makes sense.
I so …ing pissed as well when people ask some lame query and expect to be spoonfed with the response. It is one thing if you work for somebody, but it is another when others just try to give generic answers so that the person asking the question may use his/her brain! It is so …ing dissapointing to have people like that!