what is invested capital exactly and is it static?

[scorpioncapital]

I'm a bit confused what is defined as the invested capital.

Is it the annual capex over many years, summed together, or

is it the actual historical capital on the equity side (+ debt) of the balance sheet?

I can see a case where both are important to invested capital relative to revenues or earnings.

One is somewhat static, except for retained earnings, the other is a regular annual expense.

[Spekulatius]

I think the easiest way is to take the entire balance sheet and subtract anything that’s isn’t necessary to run the business (excess cash, excess investments ) - that’s your invested capital. You can calculate this from both sides (asset or liability side) of the balance sheet.

[Value_Added]

The quick and dirty I use is equity plus debt.  Every business is different and as you learn more about a specific business you can adjust certain balance sheet items as you see fit.  I don’t attempt to be too precise because at a certain point you’ll lose the forest through the trees.  I think it’s more important to understand how capital flows through the business to make it work and use crude metrics for ROIC.
 

[mohdnawfal]

Ok I'm not too fussed about what the exact definition of Invested Capital is but the most useful formula I find is

 

Net working capital + Non-Current Assets - Excess Cash - Investments not related to operating business 

Edited November 24, 2023 by mohdnawfal