Best Buy 2004 Annual Report Download - page 23

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Our return on invested capital calculation represents the rate of return generated by the capital deployed
in our business. We use ROIC as an internal measure of how effectively we use the capital invested
(borrowed or owned) in our operations.
As a company, we define ROIC as follows:
NOPAT (as adjusted)
ROIC = _______________________________
Adjusted Average Invested Capital
Return on Invested Capital
($ in millions) FY 2002 FY 2003 FY 2004
Net Operating Profit (as adjusted)
Operating Income $ 908 $ 1,010 $1,304
+Net Rent Expense (1) 283 362 410
–Interest Portion of Rent Expense (1) (102) (154) (183)
=NOPBT (as adjusted) $ 1,089 $ 1,218 $1,531
–Tax Expense (2) (418) (471) (586)
=NOPAT (as adjusted) $671 $ 747 $945
Adjusted Average Invested Capital
Total Equity $ 2,158 $ 2,429 $3,034
+Long-Term Debt (3) 428 821 835
+Capitalized Operating Leases, net of excess cash (4) 1,434 1,511 1,181
=Adjusted Average Invested Capital $ 4,020 $ 4,761 $5,050
ROIC 16.7% 15.7% 18.7%
Note: NOPAT (as adjusted) based on continuing operations data
(1) Based on fixed rent associated with leased properties
(2) Tax expense calculated using effective tax rates for FY 2004 (38.3%), FY 2003 (38.7%) and FY 2002 (38.4%)
(3) Long-Term Debt plus current portion of convertible debt, as applicable
(4) Capitalized Operating Leases, net of Cash & Cash Equivalents in excess of $300 million
Best Buy Co., Inc. 21
Return on Invested Capital (ROIC)
Numerator = NOPAT
(trailing four quarters, as adjusted)
Operating Income
+Net Rent Expense (1)
–Interest Portion of Rent Expense (1)
=NOPBT (net operating profit before taxes, as adjusted)
–Tax Expense (2)
=NOPAT (net operating profit after taxes, as adjusted)
Denominator = Adjusted Average Invested Capital
(trailing four quarter average)
Tota l Equity
+Long-Term Debt (3)
+Capitalized Operating Leases
–Excess Cash
=Adjusted Average Invested Capital