BS line item treatment for determining TEV
If a company lists restricted cash not for working capital purposes, but instead for covenants adherence, would you be allowed to subtract it in the TEV like normal cash? Also, what is the difference between Investment in Unconsolidated Affairs (asset side) versus minority interest (on the liability... If a company lists restricted cash not for working capital purposes, but instead for covenants adherence, would you be allowed to subtract it in the TEV like normal cash? Also, what is the difference between Investment in Unconsolidated Affairs (asset side) versus minority interest (on the liability/equity side)? Thanks. Read More

Re: Capital charge under EVA
We would agree with you here per the thread on Residual Income. For folks stumbling upon this post, please go here as well: https://www.wstuniversity.com/forum/wst_self_study_q_a-2/package_3:_advanced_financial_modeling-91/enhancements_to_the_core_model___part_ii-94/residual_income_-100?single=20... We would agree with you here per the thread on Residual Income. For folks stumbling upon this post, please go here as well:

https://www.wstuniversity.com/forum/wst_self_study_q_a-2/package_3:_advanced_financial_modeling-91/enhancements_to_the_core_model___part_ii-94/residual_income_-100?single=2013&parent=0 Read More

Re: ROIC
This is a great question and here we will take this opportunity to clarify for all ROC vs ROIC: ROC is Return on capital and meant to capture capital structure financial returns. It would be comparable to ROE and it IS supposed to include all stakeholders in the numerator as well: (Net Income... This is a great question and here we will take this opportunity to clarify for all ROC vs ROIC:

ROC is Return on capital and meant to capture capital structure financial returns.
It would be comparable to ROE and it IS supposed to include all stakeholders in the numerator as well:

(Net Income + Interest Expense) / (Debt + Equity)

Additional Clarifications:
- Do not subtract out dividends in the numerator: this is not a cash flow or IRR calculation per se
- Interest Expense is gross interest, do not include effects of interest income
- Both Debt and Equity in denominator are book value, not market values
- Denominator would be average capital, so average(Year 1 debt+equity, Year 2 debt+equity)

ROIC is Return on Invested Capital and meant to capture efficiency of its capital allocation.
As we discuss in class, do not rely on Investopedia definitions - they are flat out wrong.

ROIC formula =
NOPAT (Net Operating Profit After Tax, or in DCF language, Tax-Effected EBIT) divided by:
Net PPE + Net Intangibles + Net Working Capital

This would be more comparable to Asset Turnover (Sales/Assets) than ROE or ROC calculation.

Additional Clarifications:
- Use of NOPAT is similar to how ROA (NI / Assets) is technically not correct in that Assets are used to generate all CF, not just to Equity stakeholders and therefore, EBIT/Assets would be more appropriate but no one actually uses EBIT/Assets due to the over-emphasized importance on Equity returns
- In an ideal world, Invested Capital should also be average but people get lazy and use ending balance
- Net PPE is also known as Net Fixed Assets; depends on particular you want to be in including stuff like Construction in Progress
- Net PPE includes Land
- Net Working Capital, similar to a previous post of yours, does not include cash and debt, etc Read More

Why is Long Term Liabilities and LT Compensation included in changes in Working Capital?
I thought Working Capital encompassed only current assets-current liabilities

Re: Averaging When Mixing IS and BS Items
Generally speaking for comparison purposes, you would take the average BS when mixing IS and BS items in a ratio.
However, for financial modeling purposes, to avoid lumpiness in the projections, we use ending BS values for Working Capital drivers.