How to Calculate Capital Employed
Capital employed has many different definitions. In general, it represents the amount of money that is invested in a business to support its operations.
Formula:
Capital Employed = Total assets − Current liabilities
Or: = Total share capital + reserves + current liabilities + loan capital
Or: = Equity + non-current liabilities
Or: = Non-current assets + working capital
Or: = ordinary share capital + reserves
Example:
Company ABC has the following data:
Buildings $150,000
Furnitures $20,000
Stocks $32,000
Debtors $8,000
Cash $5,000
Creditors $55,000
Bank overdraft $45,000
Then,
Fixed assets = 150,000 + 20,000 = $170,000
Current assets = 32,000 + 8,000 + 5,000 = $45,000
Total assets = Fixed assets + Current assets = 170,000 + 45,000 = $215,000
Current liabilities = Creditors + Bank overdraft = 55,000 + 45,000 = $100,000
Capital Employed = Total assets − Current liabilities = 215,000 - 100,000 = $115,000
Formula:
Capital Employed = Total assets − Current liabilities
Or: = Total share capital + reserves + current liabilities + loan capital
Or: = Equity + non-current liabilities
Or: = Non-current assets + working capital
Or: = ordinary share capital + reserves
Example:
Company ABC has the following data:
Buildings $150,000
Furnitures $20,000
Stocks $32,000
Debtors $8,000
Cash $5,000
Creditors $55,000
Bank overdraft $45,000
Then,
Fixed assets = 150,000 + 20,000 = $170,000
Current assets = 32,000 + 8,000 + 5,000 = $45,000
Total assets = Fixed assets + Current assets = 170,000 + 45,000 = $215,000
Current liabilities = Creditors + Bank overdraft = 55,000 + 45,000 = $100,000
Capital Employed = Total assets − Current liabilities = 215,000 - 100,000 = $115,000
For those who study ACCA / CIMA or other accounting programs, they also need to learn how to calculate the return on capital employed (ROCE) ratio, which measures the return that is being earned on the capital invested.