Dear colleagues, I have one problem with calculation of accounting ROIC. I want to calculate book return on NET invested assets, which can be estimated simply as NOPAT divided by Net Debt + Shareholders Equity. The problem is if a company is a net cash one. In this case if net cash exceeds shareholders equity the company has negative net invested capital and calculated ROIC would be economically absurd. Any ideas how to treat this case?
Using Cash ROIC is one way to resolve the issue you have: Cash ROIC = [Operating Incomet (1 - tax rate) + Depreciation & Amortization] / [Gross Fixed Assets + Non - cash Working Capital] ; where Gross Fixed Assets = Net Fixed Assets + Accumulated Depreciation.
this formula is wrong. both the the numerator and denominator actually.