From this year's income statement

Operating Income = ###

Taxable Income = ###
Taxes Paid = ###
Net Income = ###
Interest income on cash (if avaliable) $187.00
Interest expenses on debt = ###

From previous year's Balance Sheet: Asset Side

Cash & Marketable Securities ###
Goodwill ###
Do you have R&D expenses that you want to captialize? No

From previous year's Balance Sheet: Liability Side

Short term interest bearing Debt ###
Long term interest bearing debt ###
Shareholder Equity ###
Minority Interest (if consolidated in shareholder equity, separat ###
Does the firm have any operating lease commitments? Yes If yes, please fill in the lease converter w
If yes, enter the pre-tax cost of debt to use in converting leases 2.61%

Questions
The effective tax rate is usually used to compute after-tax operating income. But using a marginal tax rate will yield
Do you want to use your effective tax rate to compute after-ta Yes
If yes, the rate used will be 31.01%
If no, enter tax rate to use

Goodwill is generally not included in invested capital on the assumption that it is paid for growth assets
Do you want to stay with this assumption? Yes
If no, enter the portion of goodwill that you want to leave in in 50.00%

Cash is usually netted out of invested capital. It sometimes makes sense to leave a portion of the cash in capital, if i
Do you want to stay with this assumption? No
If not, enter the portion of cash you want to leave in invested ca 20.00%
ease fill in the lease converter worksheet using last year's commitments

ing a marginal tax rate will yield a more robust (albeit understated) value

aid for growth assets

portion of the cash in capital, if it is needed for operations

 Return on Invested Capital
Stated Operating Income = ###
+ Adjustment for leases ###
+ Adjustment for R&D $0.00
Adjusted Operating Income ###
Tax rate used 31%
After-tax Operating Income ###
+ Tax adjustment for R&D $0.00
After-tax Operating Income ###

Book value of interest beari ###

Book value of equity ###
+ Minority Interests ###
- Goodwill ###
- Cash ###
Invested Capital ###
+ Capitlaized leases ###
+ Capitalized R&D $0.00
+ Goodwill add back $0.00
+ Cash add back ###
Adjusted Invested Capital ###

Return on invested capital 18.99%

Adjusted Return on Invested 17.23%

Return on Equity Non-cash ROE

Stated Net Income 16999 Stated Net Income
+ Adjustment for R&D $0.00 - Interest income from cash (af
Adjusted Net Income ### Non-cash Net Income
+ Tax adjustment for R&D $0.00 + Adjustment for R&D
Net Income ### + Tax adjustment for R&D
Adjusted Net Income
Book Value of Equity ###
- Goodwill ### Book Value of Equity
Book value of invested Equi ### - Goodwill
+ Capitalized R&D $0.00 - Cash
+ Goodwill add back $0.00 Adjusted Book Value of Equity
Adjusted Book value of Equi ### + Capitalized R&D
+ Goodwill add back
Return on Equity 33.55% + Cash add back
Adjusted Return on Equity 33.55% Adjusted Book Value of Equity

Non-cash ROE =
Adjusted non-cash ROE =
Non-cash ROE
16999
129.0116
16870
$0.00
$0.00
16870

###
###
###
###
$0.00
$0.00
###
 ###

37.14%
36.10%
 Operating Lease Converter
Operating lease expenses are really financial expenses, and should be treated as such. Accounting standards allow th
be treated as operating expenses. This program will convert commitments to make operating leases into debt and
adjust the operating income accordingly, by adding back the imputed interest expense on this debt.

Inputs
Operating lease expense in current year = $2,400.00
Operating Lease Commitments (From footnote to financials)
Year Commitment! Year 1 is next year, ….
1 $1,644.00
2 $1,590.00
3 $1,525.00
4 $1,428.00
5 $1,312.00
6 and beyond $8,916.00

Pre-tax Cost of Debt = 2.61%

From the current financial statements, enter the following

Reported Operating Income (EBIT) = ### ! This is the EBIT reported in the current income statement
Reported Debt = ### ! This is the interest-bearing debt reported on the balance sheet
Reported Interest Expenses = $ 2,251.00
Output
Number of years embedded in yr 6 esti 6 ! I use the average lease expense over the first five years
to estimate the number of years of expenses in yr 6
Converting Operating Leases into debt
Year CommitmentPresent Value
1 $1,644.00 $ 1,602.18
2 $1,590.00 $ 1,510.14
3 $1,525.00 $ 1,411.56
4 $1,428.00 $ 1,288.16
5 $1,312.00 $ 1,153.41
6 and beyon $1,486.00 $ 7,169.32 ! Commitment beyond year 6 converted into an annuity for ten years
Debt Value of leases = $ 14,134.78

Adjustment to Operating Income

+ Current year's operating lease expense = $2,400.00
- Depreciation on leased asset = $1,284.98
Adjusted Operating Income $1,115.02
. Accounting standards allow them to
perating leases into debt and
e on this debt.

e balance sheet
 Operating Lease Converter
Operating lease expenses are really financial expenses, and should be treated as such. Accounting standards allow th
be treated as operating expenses. This program will convert commitments to make operating leases into debt and
adjust the operating income accordingly, by adding back the imputed interest expense on this debt.

Inputs
Operating lease expense in current year = $2,600.00
Operating Lease Commitments (From footnote to financials)
Year Commitment! Year 1 is next year, ….
1 $1,722.00
2 $1,598.00
3 $1,480.00
4 $1,384.00
5 $1,246.00
6 and beyond $9,373.00

Pre-tax Cost of Debt = 2.61%

From the current financial statements, enter the following

Reported Operating Income (EBIT) = ### ! This is the EBIT reported in the current income statement
Reported Debt = ### ! This is the interest-bearing debt reported on the balance sheet
Reported Interest Expenses = $2,251.00
Output
Number of years embedded in yr 6 es 6 ! I use the average lease expense over the first five years
to estimate the number of years of expenses in yr 6
Converting Operating Leases into debt
Year CommitmentPresent Value
1 $1,722.00 $1,678.20
2 $1,598.00 $1,517.74
3 $1,480.00 $1,369.91
4 $1,384.00 $1,248.47
5 $1,246.00 $1,095.39
6 and beyon $1,562.17 $7,536.79 ! Commitment beyond year 6 converted into an annuity for ten years
Debt Value of leases = ###

Adjustment to Operating Income

+ Current year's operating lease expense $2,600.00
- Depreciation on leased asset = $1,313.32
Adjusted Operating Income $1,286.68
nting standards allow them to
leases into debt and
 R & D Converter
This spreadsheet converts R&D expenses from operating to capital expenses. It makes the appropriate adjustments to operating income,
income, the book value of assets and the book value of equity.

Inputs
Over how many years do you want to amortize R&D expenses 5 ! If in doubt, use the lookup table below
Enter the current year's R&D expense = $1,771.00 The maximum allowed is ten years
Enter R& D expenses for past years: the number of years that you will need to enter will be determined by the amortization period
Do not input numbers in the first column (Year). It will get automatically updated based on the input above.
Year R& D Expenses
-1 1678.00 ! Year -1 is the year prior to the current year
-2 1529.00 ! Year -2 is the two years prior to the current year
-3 1367.00
-4 1267.00
-5 1205.00
0
0
0
0
0

Output
Year R&D Expense Unamortized portion Amortization this year
Current 1771.00 1.00 1771.00
-1 1678.00 0.80 1342.40 $ 335.60
-2 1529.00 0.60 917.40 $ 305.80
-3 1367.00 0.40 546.80 $ 273.40
-4 1267.00 0.20 253.40 $ 253.40
-5 1205.00 0.00 0.00 $ 241.00
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
0 0.00 0.00 0.00 $ -
Value of Research Asset = $4,831.00 $1,409.20

Amortization of asset for current year = $1,409.20

Adjustment to Operating Income = $361.80 ! A positive number indicates an increase in operating income (add to reported
Tax Effect of R&D Expensing $137

Look Up Table for Amortization Periods

Industry Name Amortization Period
Advertising 2
Aerospace/Defense 10 Non-technological Servi 2 years
Air Transport 10 Retail, Tech Service 3 years
Aluminum 5 Light Manufacturing 5 years
Apparel 3 Heavy Manufacturing 10 years
Auto & Truck 10 Research, with Patentin 10 years
Auto Parts (OEM) 5 Long Gestation Period 10 years
Auto Parts (Replacem 5
Bank 2
Bank (Canadian) 2
Bank (Foreign) 2
Bank (Midwest) 2
Beverage (Alcoholic) 3
Beverage (Soft Drink) 3
Building Materials 5
Cable TV 10
Canadian Energy 10
Cement & Aggregate 10
Chemical (Basic) 10
Chemical (Diversified 10
Chemical (Specialty) 10
Coal/Alternate Energ 5
Computer & Peripher 5
Computer Software & 3
Copper 5
Diversified Co. 5
Drug 10
Drugstore 3
Educational Services 3
Electric Util. (Central) 10
Electric Utility (East) 10
Electric Utility (West) 10
Electrical Equipment 10
Electronics 5
Entertainment 3
Environmental 5
Financial Services 2
Food Processing 3
Food Wholesalers 3
Foreign Electron/Ent 5
Foreign Telecom. 10
Furn./Home Furnishi 3
Gold/Silver Mining 5
Grocery 2
Healthcare Info Syst 3
Home Appliance 5
Homebuilding 5
Hotel/Gaming 3
Household Products 3
Industrial Services 3
Insurance (Diversified 3
Insurance (Life) 3
Insurance (Prop/Casu 3
Internet 3
Investment Co. (Dome 3
Investment Co. (Fore 3
Investment Co. (Inco 3
Machinery 10
Manuf. Housing/Rec 5
Maritime 10
Medical Services 3
Medical Supplies 5
Metal Fabricating 10
Metals & Mining (Div. 5
Natural Gas (Distrib.) 10
Natural Gas (Diversifi 10
Newspaper 3
Office Equip & Suppli 5
Oilfield Services/Equi 5
Packaging & Containe 5
Paper & Forest Produ 10
Petroleum (Integrate 5
Petroleum (Producing 5
Precision Instrument 5
Publishing 3
R.E.I.T. 3
Railroad 5
Recreation 5
Restaurant 2
Retail (Special Lines) 2
Retail Building Suppl 2
Retail Store 2
Securities Brokerage 2
Semiconductor 5
Semiconductor Cap E 5
Shoe 3
Steel (General) 5
Steel (Integrated) 5
Telecom. Equipment 10
Telecom. Services 5
Textile 5
Thrift 2
Tire & Rubber 5
Tobacco 5
Toiletries/Cosmetics 3
Trucking/Transp. Lea 5
Utility (Foreign) 10
Water Utility 10
ustments to operating income, net

okup table below

the amortization period

erating income (add to reported EBIT)