Invested Capital

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mpearc4

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For EVA, we do NOPAT -$Wacc.
Is the amount used for invested capital just the accounting book value of all shareholder’s equity and interest bearing debt? Basically what I’m asking is, how to get to “invested capital” from a balance sheet. Not just given “book value of debt and equity.”
Same for MVA.
For market value of company, use the fair value of debt an all equity (including equity that isn’t common stock?).
 
I could be wrong here (had this question for review also)…
For EVA: Inv is “net working capital” + “net fixed assets” or “BV L-T Debt + BV Equity”.
For MVA i would think its the same thing, but I’ve only seen it as ”BV L-T Debt + BV Equity”.
 
But for MVA, we start with market value of company. So I assumed (price x number of shares) + market value of all debt. But if you subtract BV of equity from it for “accounting book value of capital,” then you’re including the other parts of equity (like retained earnings).
Also, yes I saw that in schweser (NWC + Net fixed assets = invested capital). But that isn’t anywhere in CFA texts.
 
Ok so as far as I can tell, someone correct me if I’m wrong. The definitions for invested capital for MVA and EVA are NOT the same.
For EVA, invested capital is ALL shareholders equity + all interest bearing debt + LT liabilities. This is equivalent to Total assets - NIBL, where NIBL are non interest bearing liabilities.
For MVA, invested capital is ONLY the book value of interest bearing debt and common equity (so NO retained earnings). This makes sense. As I mentioned in my previous post, for MVA, the first term only includes the market value of common stock, so we can’t also subtract retained earnings.
Any help on this is greatly appreciated. I just know they’re not going to give us a nice “for eva calcs, assume invested capital = 1MM.” It’s going to be some 2 page complex balance sheet with all different forms of financing.
 
Mpearc4 - I think I recall there was an EVA question in the Schweser bk (probably end of chapter question 22 or 23, I have my notes but not the book with me)
I think I recall that the calc was all equity (book plus APIC plus RE) plus the long-term debt, but excluding the current debt. I remember I thought that the exclusion of current debt was strange.
I’ll check it later tonight and let you know what I find.
 
Sorry for the late reply
Didn’t find the exact question I was thinking of, but Schweser Equity bk p. 196 is where you want to be
EVA = NOPAT - (WACC * Invested Capital)
Invested Capital = book value of long-term debt + book value of equity
OR Invested Capital = net working capital + fixed assets
These two should be the same if I think of it this way:
A = L + E.
Translated:
Fixed Assets + Current Assets = Current Liabilities + Bk Long Term Debt + Book Equity
Rearrange:
Fixed Assets + Current Assets - Current Liabilities = Bk Long Term Debt + Book Equity
Current Assets - Current Liabilities = NWC
So:
Fixed Assets + NWC = Bk Long Term Debt + Book Equity
Only thing bothering me here is I know we usually exclude cash and ST debt from NWC calcs, so I’m not sure how to reconcile that. Maybe Sir S2000 can help out, but he’s done enough here :)
 
Debt does not equal Liabilities in the accounting equation.
Liabilities is also made up of non debt accounts such as accounts payable.
 
SWhip wrote:
Debt does not equal Liabilities in the accounting equation.
Liabilities is also made up of non debt accounts such as accounts payable.
Click to expand...
Included current liabilities in the first equation.
 
frgna wrote:
SWhip wrote:
Debt does not equal Liabilities in the accounting equation.
Liabilities is also made up of non debt accounts such as accounts payable.
Click to expand...
Included current liabilities in the first equation.
Click to expand...
Fixed Assets + Current Assets = Current Liabilities + Bk Long Term Debt + Book Equity
 
frgna wrote:
SWhip wrote:
Debt does not equal Liabilities in the accounting equation.
Liabilities is also made up of non debt accounts such as accounts payable.
Click to expand...
Included current liabilities in the first equation.
Click to expand...
Haha sorry, i’m an idiot. Not sure why I didn’t catch that. As you all know studying is starting to take its mental toll…..
 
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