WHAT IS CAPITAL EMPLOYED?

Capital employed is basically the long term funds employed in a business.

Capital employed of a business is from the ordinary shareholders and from long term liabilities. Hence, it is the effective amount of money actually being used in a business, regardless of whether it is from the owners or creditor or banks.

The long term liabilities includes the bank borrowings ( at least more than 12 months after balance sheet) or debenture holders which is of fixed duration and demands a fixed rate of interest

Another name for Capital Employed is NET WORTH

FORMULA FOR CAPITAL EMPLOYED OR NET WORTH

=Owners’ Equity + Long Term Liabilities

(Owners’ equity=ordinary share capital + plus =ordinary shareholders’ fund)

Since Capital employed = Net Worth

Net Worth = Total Assets less current liabilities

Net Worth = Net Assets