Capital employed

Capital employed has many definitions. 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.

Definitions

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

Capital Employed is equal to 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.

Capital employed can be defined as equity plus loans which are subject to interest or one can say that it is total assets less non bearing interest liabilities.

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. More clearly capital employed means total of long term liabilities, ie equity share capital+ pre share capita+ debenture capital+ long term loan from financial institutions.

Capital employed is the value of the assets that contribute to a company's ability to generate revenues, ie. their liquidity.