June 4, 2014 Calculating Return on Invested Capital6You then add net property, plant, and equipment (PP&E) to net working capital. Further, you need to add goodwill—more on that in a moment—and any other operating assets required to run the business. If you are wondering about whether to include an item in invested capital, simply ask if the company could generate the same level of NOPAT without the item. If not, include it. If so, exclude it. From the liabilities plus equity side of the balance sheet, the invested capital calculation starts with total debt, both short- and long-term, and adds equity, including preferred stock or any other equity-linked securities. Finally, there are a number of other items you must capture. These include deferred taxes and other long-term liabilities, such as those related to pensions. Exhibit 3 shows the calculation of Cisco’s invested capital.Cisco’s ROIC in fiscal 2013 was 34.1 percent [$10.4 billion/($33.6 billion + $27.2 billion/2)] and 34.2 percent in 2012 [$9.3 billion/( $27.2 billion + $27.3 billion/2)]. Exhibit 3: Calculation of Invested Capital for Cisco Systems, Inc. Source: Company published data and Credit Suisse. Operating approachDescription20092010201120122013ReferenceCash *1,4451,6021,7291,8421,944line 1 * 4%Accounts receivable3,1774,9294,6984,3695,470line 28Inventories1,0741,3271,4861,6631,476line 29Deferred tax assets2,3202,1262,4102,2942,616line 30Prepaid and other2,6053,1784,0524,8915,349line 31Total current assets10,62113,16214,37515,05916,855- NIBCLs13,65516,13716,91817,70018,909line 39 + line 40 + line 41 + line 42 + line 43Net working capital(3,034)(2,975)(2,543)(2,641)(2,054)+Net PP&E4,0433,9413,9163,4023,322line 33+Goodwill12,92516,67416,81816,99821,919line 34+ Intangibles1,7023,2742,5411,9593,403line 35+Other assets5,2815,8206,5897,4677,026line 36Invested capital20,91726,73427,32127,18533,616(*) cash = 4 percent of sales.