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Hello sir could you please tell me why we add non cash expense in capital employed? I have seen some Qs its only added back to Nopat and in some to both Cap employed and Nopat.
My second Qs is whats the difference between Gearing ratio and Debt:equity ratio?
Non-cash expenses are not regarded as real expsnses. They are reversed by adding the yeat’s expense back to NOPAT.
Whether or not they have to be added to CE depends on when the expense occurred. The CE used in EVA is the opening CE, so if the non-cash expense happened this period it would have no effect on opening CE.
Gearing ratio and D/E are often the same. If there are preference shares they would appear in the top line of gearing but usually not be inncluded as debt in D/E (though calculations can vary).
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