Enterprise Value-to-Invested Capital (EV/IC)

For informational and educational purposes only • Not investment advice.

Compare EV/IC valuations across companies

Nvidia

Apple

Alphabet

Microsoft

Selected EV/IC Multiple

What is EV/IC?

The EV/IC valuation compares Enterprise Value with the capital invested in the company's operating business. It shows how much Enterprise Value the market assigns to each unit of Invested Capital.

In this valuation, the company's historical EV/IC multiples are used to estimate a typical valuation level. The selected multiple is then applied to current Invested Capital to estimate fair Enterprise Value, which is converted into fair Equity Value and Fair Value per Share.

EV/IC can be particularly useful when evaluating capital-intensive businesses and when comparing valuation with the company's ability to generate returns on invested capital. The multiple should therefore also be considered alongside measures such as ROIC and WACC.

How EV/Invested Capital Valuation Works

Calculate Historical EV/IC

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Select the EV/IC Multiple

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Estimate Fair Value Per Share

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Compare With Current Valuation

EV/Invested Capital Formula

\text{EV/IC} = \frac{ \text{Enterprise Value} }{ \text{Invested Capital} }

\text{Enterprise Value} = \text{Market Capitalization} + \text{Net Debt}

\text{Net Debt} = \text{Total Debt} - \text{Cash \& Short-Term Investments}

\text{Invested Capital} = \text{Book Value} + \text{Total Debt} - \text{Cash \& Short-Term Investments}

Key Model Assumptions

• Invested Capital is calculated as Book Value plus Total Debt minus Cash & Short-Term Investments.
• Enterprise Value is calculated from Market Capitalization adjusted for Net Debt or Net Cash.
• The 10 most recent valid historical EV/IC multiples are used to estimate the company's typical valuation multiple.
• The historical median EV/IC forms the Base valuation assumption.
• Conservative and optimistic scenarios adjust the historical median EV/IC.
• Current Invested Capital is assumed to provide a meaningful measure of the capital employed in the operating business.
• Historical EV/IC multiples may become less representative when acquisitions, asset write-downs, accounting changes or major changes in the company's capital base occur.

Step 1 — Calculate Historical EV/IC Multiples

Historical Enterprise Value = Historical Market Cap + Historical Net Debt

Historical Invested Capital = Historical Book Value + Historical Total Debt − Historical Cash & Short-Term Investments

Historical EV/IC = Historical Enterprise Value / Historical Invested Capital

Historical Median EV/IC = Median of the 10 most recent valid historical EV/IC multiples

The model calculates historical Enterprise Value and Invested Capital for each available year. Enterprise Value combines market capitalization with net debt, while Invested Capital represents the capital committed to the company's operating business. Dividing Enterprise Value by Invested Capital produces the historical EV/IC multiple. The median of the 10 most recent valid multiples represents the company's typical historical valuation level.

Step 2 — Select the Valuation Multiple

Selected EV/IC = Historical Median EV/IC × Scenario Adjustment

The selected scenario adjusts the company's historical median EV/IC multiple to provide a more conservative or optimistic valuation assumption. Because the adjustment is applied to each company's own historical median, the valuation remains anchored to its historical market valuation.

Step 3 — Estimate Fair Value Per Share

Fair Enterprise Value = Current Invested Capital × Selected EV/IC

Fair Equity Value = Fair Enterprise Value − Net Debt

Fair Value Per Share = Fair Equity Value / Shares Outstanding

The selected EV/IC multiple is applied to current Invested Capital to estimate Fair Enterprise Value. Net debt is then subtracted, or net cash is added, to convert Enterprise Value into Equity Value. Equity Value is divided by shares outstanding to estimate Fair Value per Share.

Step 4 — Compare With Current Valuation

Current Enterprise Value = Current Market Cap + Current Net Debt

Current EV/IC = Current Enterprise Value / Current Invested Capital

Valuation Gap = Fair Value Per Share / Current Price − 1

The current EV/IC multiple is compared with the selected valuation multiple and the company's historical EV/IC range. The Valuation Gap then compares the estimated Fair Value per Share with the current stock price, showing how far the market price is above or below the model's estimate.