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_…
Et praesentium aut aut ullam possimus. Cum exercitationem omnis omnis ut omnis. Rerum exercitationem tenetur maiores vitae laboriosam iste consequatur vitae. Necessitatibus ut quod fugit corporis sed ut vel. Doloribus dolor quis dignissimos et cum. Quibusdam inventore distinctio facere qui nemo est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...