Capital employed

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[edit] Introduction

Capital employed has many definitions and is not easily analyzed. 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 fixed assets plus working capital:

CapitalEmployed = FixedAssets + CurrentAssets − CurrentLiabilities
or
CapitalEmployed = FixedAssets + WorkingCapital

[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.

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