Invested capital

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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:

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

Equivalently, the financing approach is calculated as

In symbols:

${\displaystyle K=D+E-M\,}$

Invested capital is used in several important measurements of financial performance, including return on invested capital, economic value added, and free cash flow.

Video Invested capital

Approach

Operating approach

Financing approach

Maps Invested capital

References

• Brealey, Myers, and Allen. Principles of Corporate Finance, 8th edition (McGraw-Hill/Irwin, 2005).
• G. Bennett Stewart III. The Quest for Value (HarperCollins, 1991).

Source of article : Wikipedia