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. 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.
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