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.[1] 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

Invested capital = total debt and leases
+ total equity and equity equivalents
non-operating cash and investments

In symbols:

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


Operating approach[edit]

Current operating assets 2,000
(Non-interest bearing current liabilities) (800 )
Net working capital 1,200  
Net property, plant, and equipment 4,800
PV of non-capitalized lease obligations 400
Goodwill and intangibles 1,600  
Invested capital 8,000  

Financing approach[edit]

Short term debt 300
Current portion 500
Long term debt 2,300
PV of non-capitalized lease obligations 400  
Total debt and leases 3,500  
Common stock 600
Additional paid-in capital 1,900
Retained earnings 1,500
Bad debt reserve 200
LIFO reserve 500
Capitalized R&D expense 1,000
Capitalized marketing expense 300  
Total equity and equity equivalents 6,000  
(Marketable securities) (1,500 )
Invested capital 8,000  


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