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Capital employed 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.
Capital employed, also known as funds employed, is the total amount of capital used for the acquisition of profits. It is the value of all the assets employed in a business and can be calculated by adding fixed assets to working capital or subtracting current liabilities from total assets:
Liabilities include more than debt. Long-term debt and short-term debt are both subject to interest. Current liabilities include short-term debt. Debt that is not due within one year is long-term debt. Liabilities that do not fall under debt are not subject to interest. However, future interest on the debt is not shown on the balance sheet. Interest accrued is shown as interest payable.
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-interest-bearing responsibilities.
Capital employed can be defined as shareholders funds (i.e. 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, by definition.
Capital employed is essentially the amount of money spent on the company, from shareholders and bondholders.
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