deletions | additions       diff --git a/section_Building_a_Profitability_Valuation__.tex b/section_Building_a_Profitability_Valuation__.tex  index f8662ac..777bce7 100644  --- a/section_Building_a_Profitability_Valuation__.tex  +++ b/section_Building_a_Profitability_Valuation__.tex 
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\end{equation}  \\  \\  If we define Enterprise Value as the market value of Debt and Equity minus the cash (and other non-operating assets)  a firm holds, it appears clear from these accounting identities that Enterprise Value is the market value of the operating assets. We define Invested Capital as the book value of the operating assets, also equal to the book value of Debt and Equity. Following the Profitablity-Valuation framework based on earnings and equity, the challenge is to link the \textit{FCFF} model defined in (9) to a Profitablity-Valuation relationship where valuation is a ratio that relates the market value of operating assets $EV_{t}$ to the book value of the operating assets $IC_{t}$. Thirdly, we need to identify a certain number of accounting identities similar to the ones we used for the \textit{RIM} in order to link cash-flow generation, the balance sheet and the market value of the balance sheet.  \\  \\  As its name suggests, the \textit{RIM} hinges on the clean surplus accounting identity, where profits that are not distributed to shareholders are reinvested in the firm thus changing the value of the equity. Similarly, the cash generated by the firm that is not distributed to equity holders and debt holders is reinvested in the firm in net capital expenditures and non-cash working capital :   \begin{equation}  FCFF_{t}=NOPAT_{t}+NetCapex_{t}+\bigtriangleup WC_{t} FCFF_{t}=NOPAT_{t}-(NetCapex_{t}+\bigtriangleup WC_{t})  \end{equation}  Where $NOPAT_{t}$ is the Net Operating Profit After Tax at time $t$ and $NetCapex_{t}$ are the Capital Expenditures Net of Depreciation and $\bigtriangleup WC_{t}$ the change in non-cash Working Capital. Over one period, the change in Invested  Capital $IC$ is equal to :  \begin{equation}  IC_{t}-IC_{t-1}=NetCapex_{t}+\bigtriangleup WC_{t}  \end{equation}