Capital employed

Definition

Capital employed represents the total amount of capital used for the acquisition of profits by a firm or project. It is calculated as total assets minus current liabilities.

5 Must Know Facts For Your Next Test

1. Capital employed is essential in determining a company's return on capital employed (ROCE), an important profitability ratio.
2. It includes both equity and debt funds that are utilized for the business operations.
3. A higher capital employed figure often indicates greater investment in assets and business expansion.
4. It is used to assess the efficiency and profitability of a company’s capital investments.
5. Capital employed can be calculated using two formulas: Total Assets - Current Liabilities or Equity + Non-current Liabilities.

Review Questions

• How do you calculate capital employed?
• Why is capital employed significant in evaluating a company’s performance?
• What components are included in calculating capital employed?

Related terms

Return on Capital Employed (ROCE): A financial ratio that measures the profitability and efficiency with which a company's capital is used.

Total Assets: The sum of all assets owned by a company, including both current and non-current assets.

Current Liabilities:

Obligations or debts that are due within one year, such as accounts payable and short-term loans.