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Canada (158,106)
BUS 315 (2)
Chapter 2

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Simon Fraser University
Business Administration
BUS 315
Greta Fensenko

2.5 invested capital operation side = trade capital + net fixed assets trade capital: current assets - current liabilities - current liability account that is financial in nature net fixed assets: investment that support long term production activities of the firm cost basis of fixed assets - accumulated depreciation financial side = debt + equity debt: long term debt, short term debt, bank indebtness, deferred taxes, other financial assets equity: common stock, share capital, R/E, preferred shares debt to IC = debt (short term, long term, others)/IC tells us the business investment is financed with debt (creditors) equity to IC = equity/IC tells us the business investment is financed with equity (shareholders) debt to IC + equity to IC = 1 trade capital to IC = trade capital/IC tells us how much of the business investment is being held up for short term usage ROIC = EBITDA/IC (bop) = EBITDA Margine x IC turnover not the market rate of return but rather only the company's rate of return ROIC (after tax, after depreciation) = (EBITDA-DA)(1-t)/ICbop invested capital turnover = sales/IC tells us everyone 1$ invested in capital generate $x of sales - increase sales without increase invested capital is best high IC turnover -> low EBITDA due to competition ROE = net income/equity (bop) - when ROE > ROIC then shareholders benefit because ROIC is high - when ROE < ROIC then when firm borrows at low interest and generate higher returns then shareholder's benefit current ratio = current assets/current liabilities tells us that the company is liquid enough to meet its current liabilities quick ratio = c
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