Capital Components

Here’s a breakdown of the components of a company’s capital base with an illustration of what that breakdown could look like for a company.

Working Capital: Includes Accounts Receivable, Inventories at current FIFO value and Required Cash (equal to 2% of Sales), less Accounts Payable.

Net PP&E: The net value of property plant and equipment as reported on the stock’s GAAP balance sheet.

PV Rents: Leased assets are treated like owned and so the present value of rents is added to capital.  PV of Rents are estimated by applying a 7x multiple to operating rent expense.

Intangible Capital: Includes the finite life and indefinite life intangibles as reported, plus capitalized R&D and Ad Spend.  R&D is amortized over 5 years and Ad Spend over 3 years.  Goodwill is excluded from Intangible Capital.

Goodwill:  Includes the Goodwill balance as reported on the stock’s GAAP Balance Sheet, plus historical Goodwill Impairments.  Each period, any Goodwill Impairments are removed from Operating Expenses and added to capital.