Brief Definition
Net Invested Capital (NIC) refers to the total amount of capital that has been invested in a business by its owners and creditors, net of any cash and cash equivalents.
Further Explanation
Net Invested Capital (NIC) refers to the total amount of capital that has been invested in a business by its owners and creditors, net of any cash and cash equivalents. It represents the funds used to operate and grow the business, excluding non-operating assets. NIC provides a clearer picture of the capital employed in the core operations of the business.
NIC = Total Operating Assets – Operating Liabilities
Alternatively, it can be calculated as:
NIC = Equity + Interest-Bearing Debt –
Cash and Cash Equivalents
Example:
Company Y has $50 million in total operating assets, $10 million in operating liabilities, $20 million in equity, and $15 million in interest-bearing debt. It also has $5 million in cash and cash equivalents. The NIC for Company Y can be calculated as:
NIC = $50 – $10 = $40m
OR
NIC = $20 + $15 -$5 =$30m