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WHAT IS CAPITAL EMPLOYED? |
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Capital employed is basically the long term funds employed in a business.
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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. |
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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 |
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Another name for Capital Employed is NET WORTH |
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FORMULA FOR CAPITAL EMPLOYED OR NET WORTH |
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=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 |