How to Calculate Invested Capital
Capital is another way to say money in the business world. Without capital, most businesses would have difficulty continuing operations. Invested capital is commonly used as a way to measure allocated capital or the capital in which companies are investing in operations. Comparing the average cost of capital (both debt and equity) with the average cost of invested capital helps to give investors an idea of how good management is at managing assets.
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Instructions
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1
Obtain a copy of the balance sheet for the company. A balance sheet is snapshot of a company's assets and the liabilities (and/or equity) which purchased those assets. This provides investors with a way to measure invested capital based on real capital outlays. The balance sheet equation is assets = liabilities + shareholders' equity.
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2
Identify invested capital. Look at all the assets listed for the company, both long and short term. Common invested capital listed under assets on the balance sheet are buildings owned (property, plant and equipment), projects, machinery, vehicles, technology and even other businesses.
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Go to the notes to the financial statements and review the section on assets. This section will provide you with additional detail on the nature of the asset. This is a good place to verify the invested capital identified in Step 2.
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4
Sum all assets identified as invested capital for total invested capital.
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References
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