I'm trying to calculate the ratio mentioned in Greenblatt, Joel. The Little Book That Still Beats the Market by hands, and quote:

Return on capital was measured by calculating the ratio of pretax operating earnings (EBIT) to tangible capital employed (Net Working Capital + Net Fixed Assets). This ratio was used rather than the more commonly used ratios of return on equity (ROE, earnings/equity) or return on assets (ROA, earnings/assets) for several reasons.

I get NWC value by subtracting the current debts from current assets, but I'm not sure about the Net Fixed Assets. In the 10-K form only NetPPE is related to this term.

Should I use NetPPE directly here?

1 Answer 1


If you don't see Net Fixed Assets in the 10-K, you will have to use the components of Net Fixed Assets to see which ones match up with the accounts on this company's balance sheet. The word 'Net' means that something was subtracted from 'Total', so knowing what component was subtracted is important, too.

By understanding all the components of NWC and Net Fixed Assets and finding the available components on the balance sheet, you will be able to complete your calculation of Tangible Capital Employed.

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