In this workout, we're asked to calculate return on invested capital for Air France KLM in 2018. Now, Air France KLM is a European airline. Now the question asks us to assume that the return obligation liability and other provisions are interest-bearing, which means they're part of the financial liabilities of the business and, therefore, part of the invested capital. We're also asked to assume that sales of aircraft equipment and other non-current income and expenses are non-recurring, which means that they should be excluded from EBIT and, therefore, also NOPAT. Now, looking at the face of the income statement, you can see that income from current operations on the face of the income statement is €1.3 billion. And that already excludes those non-recurring items. So this gives us the EBIT that we are going to use to calculate our NOPAT. We've also been given the effective tax rate of 36.4%. So calculating NOPAT is very straightforward. We're simply going to take our EBIT and multiply it by 1 minus our effective tax rate. And that gives us NOPAT of 846.7. The next step is to identify invested capital. We are going to calculate both opening and average invested capital. And we have the data already extracted for 2017 and 2018 from the balance sheet. Now let's have a look at what we've got here. Now, as you normally expect, we've got shareholders equity in invested capital. Now we also have a number of other items that make up their invested capital. We have non-controlling interests. We have pension liabilities. We have the return obligation liabilities. And we have financial debt. Those are bank borrowings and possibly issued bonds. We next have lease liabilities and also bank overdrafts. So those are all the liabilities and equity of the business. Now, if we move over to the other side of the balance sheet, the asset side also has some items that we are going to want to include in our invested capital. And those are the items which are not part of the operations of the business. That will include equity associates, also sometimes referred to as equity affiliates. We have pension assets. We have other financial assets. And we have cash and cash equivalents. One way that I look at it is that any item in the balance sheet that's generating interest income or incurring interest expense should likely be included in our invested capital calculation. And assets are going to be deducted from liabilities and equity. So we've shown those as a negative in our table. So let's calculate those now.

And that gives us total invested capital, about 12.9 billion for both 2017 and 2018. We can now calculate the return on opening capital. That's the NOPAT generated in 2018 divided by the opening invested capital for 2018. And that's 6.6%. The return on average capital is the NOPAT divided by the average of opening and closing invested capital. And again, that's 6.6% because the invested capital figure hasn't really moved much during 2018. Now, looking at the numbers here, return on invested capital of 6.6%. Is this high or low? Well, the airline industry is very capital intensive. They have a particularly large asset base reflecting the owned and leased aircraft, and this results in a very high level of capital employed or invested capital. However, it's also a very competitive industry. Profit margins have been eroded over the last few years, and margins are very low compared to other sectors. So combining high levels of invested capital and low profits results in a very low return on invested capital. In fact, the airline industry generates some of the lowest returns across the market.