Loans and money issues

Non-interest-bearing current liabilities such as accounts payable and accrued expenses are subtracted to calculate net operating working capital. The reason for subtracting these liabilities is to achieve consistency with the definition of NOPLAT. The implicit financing costs associated with these liabilities are included in the expenses that are deducted in calculating NOPLAT. For example, the implicit interest that companies incur when they pay their bills for goods or services in 30 days rather than paying on delivery is included in the cost of goods sold. By subtracting the non-interest- bearing liabilities in calculating capital, we achieve consistency with NOPLAT. Alternatively, we could add back the estimated financing cost associated with non-interest-bearing liabilities and not subtract the liabilities from capital. This approach adds considerable complexity without providing any additional insight into the economics of the business.
Any interest-bearing current liabilities, such as short-term debt and the current maturities of long-term debt, are not subtracted from operating invested capital since the financing cost associated with these liabilities is explicitly excluded from the NOPLAT calculation.

Every year a handful of banks make sufficiently large trading losses to make the non-business sections of the media take note. The surprising thing is not that some banks make large trading losses but how few very large losses are incurred, given the sheer volume of financial trading activities. Very few of the actual losses reported have been sufficiently large to threaten the solvency of the financial institutions concerned.
This state of affairs owes less to the skills of traders and more to the effectiveness and generally high standard of controls put in place to manage market risks. Most of the reported large losses have occurred as a result of fraud at banks where line management has not understood the nature of the risks being taken and failed to implement some of the most basic controls necessary. Single traders have been able to run up losses amounting to several hundred million dollars without anyone noticing. The traders concerned have, of course, taken the rap but the real finger of blame should be pointed in the direction of management.
Trading portfolio risks can be conveniently broken down into three parts: first order price risks, realization risks and model risks. These incorporate our more familiar definitions of interest rate risk, foreign exchange risk, counterparty risk and so on.