Return on Capital adjustment
Hi All,
Not sure if I am asking an obvious one but can't really be bothered to ask it in the office as in my day-to-day, for better or worse, l am only dealing with with senior-ish people that don't really give a s__t about explaining me how to adjust for stuff in models and I have been in a "figure it out yourself" culture so far:
I am a first-year at a MM PE and we have this recurring benchmarking where we use a ROIC formula with PPE + NWC at the denominator (I guess as an approx. measure of Invested capital). I have to adjust this ROCE formula for certain peers that made an acquisition. Of course most are private targets or startups and I dont have the target's PPE, NWC. As a new joiner I asked it to an associate who now left and he told me that, as an approx., he was adding the EV of the target at the denominator, which I found crazy at first. His rationale was that "EV is a measure of core assets to all shareholders" but I find a little too academic and that I might be missing something.
Any thoughts on how you would handle that?
Thanks a lot guys
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