Discontinued Operations, a Valuation Adjustment

The logic of discontinued operations is that they are not a component of core operations and therefore, not only do their earnings not belong in a calculation of net operating profit after tax (NOPAT), they also do not belong in a calculation of the invested capital that generates NOPAT. So, I banish them from my calculation of invested capital.

“Discontinued Operations, an Invested Capital Adjustment”, Joseph Noko

When it comes to estimating economic book value (EBV), one can say that the logic of discontinued operations is that, if businesses are held for sale, the cash earned from that sale is cash that enriches shareholder value. Therefore, it makes sense to add the net assets of discontinued operations to EBV.