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Invested capital

The total capital put to work in the business: debt plus equity less surplus cash, or equivalently net working capital plus fixed and intangible assets.

Invested capital is the denominator of return-on-invested-capital, and defining it consistently matters more than defining it perfectly. The operating build-up is usually cleaner: working-capital excluding cash, plus net property-plant-and-equipment, plus goodwill and intangible-assets.

Whether to include goodwill is the standard argument. Including it measures the return on what was actually paid; excluding it measures the return the operating business earns. Report both.

Example: Northwind Tools has $212M of operating working capital, $520M of PP&E and $349M of goodwill and intangibles, so invested capital is $1,081M, or $732M excluding acquired intangibles.

Related: return-on-invested-capital, working-capital, property-plant-and-equipment, goodwill, economic-profit

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