Capital employed

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Capital employed has many definitions and is not easily analysed. In general, it represents the capital investment necessary for a business to function. Consequently, it is not a measure of assets, but of capital investment: stock or shares and long-term liabilities.

[edit] Definition

Capital employed is usually represented as total assets less current liabilities, or non-current assets plus working capital:

Capital Employed = Non-Current Debt and Equity provide obvious sources of long-term funding, but a further source is provided by the short-term debt that remains on the balance sheet at the year end. The sum of these sources of long-term funds is termed capital employed.

[edit] Use in financial analysis

Capital employed is used mostly for calculating return on capital employed (ROCE), an alternative to return on equity (ROE) and return on assets (ROA) ratios.

[edit] Definition

Capital employed can be defined as shareholders funds (ie. Share capital and reserves) plus creditors > 1 year (long-term liabilities) plus provisions for liabilities and charges. NB. This MUST equal Total assets less current liabilities.

Capital employed is the value of the assets that contribute to a company's ability to generate revenue.