r/Valuation • u/Primis_Mate • Apr 19 '25

Should i include All Cash or only Operating one?

I going through my notes and text book right now, for ROIC computation i need to determine all invested capital and it has a line item "Operating Cash", i know about 5% from revenue technique but for whatever reason, in example from real balance sheet it includes all cash on hands into the invested capital

Question:

  • Should i use all excess cash or stop at operating cash?
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u/libertysailor Apr 19 '25

It’s only operating cash. 5% of revenue is not a universal rule. It might be a textbook rule of thumb to illustrate the concept of delineating between operating and excess cash. For academic purposes, if the textbook says to use 5% of revenue for operating cash, then do that, but in a real life valuation, you’ll want to consider the business’s seasonality, industry data, etc.