Does a company have a negative return on invested capital if the company has more cash than stockholder's equity?
I've been using Target's 10-K here as a standard for how to calculate ROIC for all companies: https://www.sec.gov/Archives/edgar/data/27419/000…
It's been producing reasonable figures so far. However, I applied it to Adyen, which outputted a -20% ROIC for me after I subtracted its massive Cash balance from its SE+Debt combined. Is that correct? Is this the standard way of how you all are calculating ROIC? If not, what formula should I use instead?
Why’d you subtract cash?
What are you using for your numerator? The negative you’re getting is driven by negative return, not the denominator.
ROIC = After-Tax EBIT / (Debt + SE)
Don't subtract out cash to be conservative. Note this is a Non-GAAP term, so ROIC can be manipulated/adjusted to say what you would like.
Flip through the below article to have more clarity.
https://www.morganstanley.com/im/publication/insights/articles/article_…
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