Invested Capital, Its Importance, and Interpretability Within Income-Based Methods for Determining the Value of the Company

Tomáš Krabec () and Romana Čižinská ()
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Tomáš Krabec: University of Economics, Prague
Romana Čižinská: University of Hradec Králové

Chapter Chapter 72 in New Trends in Finance and Accounting, 2017, pp 783-789 from Springer

Abstract: Abstract The paper deals with the distortion of the economic reality in the accounting showing the volume and structure of invested capital. One of the main sources of deviations in the accounting value of assets from reality is the absence of certain assets, which the company owns but does not report them for certain reasons on its balance sheet. This is essentially the case of specific items of intangible assets, which can be divided into two categories: (1) identifiable and individually valuable intangible assets (e.g., databases, brand, domain names) and (2) primary goodwill or badwill, which occurs only when the return on invested capital (ROIC) is different from the level of WACC, i.e., the return demanded and expected by investors. We propose and name reasons for activation of identifiable intangible assets to ensure that the accounting figures reflect economic reality and are linked to the relevant opportunity costs.

Keywords: Return on invested capital; Cost of capital (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-49559-0_72

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DOI: 10.1007/978-3-319-49559-0_72

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