hi all ,
i am new investor i am learning and make good foundation for selecting buisness .
i wanted to know how can i calculate roic (return on invested capital) from the annual reports
i know the formula ROIC= NOPAT / (EQUITY+DEBT)
but whenever i am reading and calcuating i am getting confused the numbers which i found is very diffrent from the numbers shown in various tool
i am considering the total equity + liabilties becuase the reports were in such manner
ROIC – Represents the % of ‘Invested Capital’ earned as profit in a specific year.
Total capital for a business is the sum of all the liabilities, including shareholder’s equity and is invested to acquire various assets, both operating and non-operating. Certain types of assets such as cash including bank balances and long-term investments are not needed immediately for the operations & invested to buy financial products say mutual funds/FD.
I think your question is – How to calculate ‘Invested Capital’?.
If yes, you have to use the both sides of the balance sheet. Out of total assets subtract the non-operating assets such as cash, must read the accounting notes to conclude, and Non-Interest bearing liabilities such as Trade Payables to arrive at the amount of the ‘Invested Capital’.
Trust that helps.
i will give a try