Invested capital

Posted in Finance, Accounting and Economics Terms, Total Reads: 682
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Definition: Invested capital

Invested capital represents the total cash investment that the shareholders and debtors have made in a company. In others words, it is equal to the difference of sum of total debt, leases and total equity and sum of non-operating cash and investments.

FORMULA:

Invested Capital = (Total Debt & Leases + Total Equity) – (Non operating Cash + Investments)

EXAMPLE:

Let Short term Debt be 500, Long Term debt 3000, Lease Obligations 600, Common Stock 800, Additional Paid in Capital 2300, Retained earnings 1800, Last in First Order reverse 700, Capitalized Marketing Expenses be 500, Capitalized R&D expenses 1200 and Marketable Securities be 2000.

 

Then, Invested Capital = (500 + 3000 + 600 + 800 + 2300 + 1800 + 700 + 500 + 1200 – 2000)

                                   = 9400

APPLICATION:

The term Invested Capital is used in Return on Investment capital, Economic value Added and Free Cash Flow.

 

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