It indicates the amount that has been invested in the company with the purpose of deploying that in the creation of assets. And those assets will eventually be used by the company to generate revenues and profits. Further, it comprises all the funds that a company has, either in the form of equity or debt. And the Equity includes all the funds belonging to the company’s owners, that is, the total paid-up share capital and the accumulated profits available with the company in the form of reserves. At the same time, debt includes all the long-term borrowings of the company. This capital employed calculator is an online tool to help us calculate the amount of capital invested in the company.
Consider the following formula for calculating capital employed:
Capital Employed = Fixed Assets + Non-Current Investments + Current Assets – Current Liabilities
Basically, current assets less current liabilities is nothing but the working capital, and hence, the above formula can be summed up as:
Capital Employed = Fixed Assets + Non-Current Investment + Working Capital
One more way to calculate the above is by using the components of the liability side is as below:
Capital Employed = Share Capital + Reserves and Surplus + Long-Term Borrowings
How to Calculate using Calculator?
The user is required to enter the following details into the capital employed calculator:
Enter the total amount of fixed assets as appearing in the balance sheet of the company. If the company records the assets at historical cost, take the net value by deducting depreciation from the historical cost. The market value of the assets may be different from their book value. In this case, consider the market value as the asset can be sold or replaced at such value only. However, generally for an ongoing business in routine, we take the values as per the balance sheet and not the market value.
We use market value when any asset transfer, investments in the company, merger, or acquisition transactions are under consideration.
Enter the amount of non-current investments in the above calculator, if any, the company makes.
Enter the total current assets held by the company. These are the assets that can be converted into cash within a period of 12 months. This includes its current investments, trade receivables, cash and cash equivalents, inventories, and other current assets.
Current liabilities of a company include its short-term liabilities that are due for payment within a period of 12 months from their accrual.
Consider the following balance sheet of X Inc. for more clarity:
|Equity & Liabilities||$||Assets||$|
|Share Capital||200,000||Fixed Assets||250,000|
|Reserves & Surplus||50,000||Non-Current Investments||45,000|
|Long-Term Borrowings||75,000||Current Assets||55,000|
Capital Employed = 250,000 + 45,000 + 55,000 – 25,000 = 325,000
Let us try to calculate this capital employed using another formula (from the liability side):
Capital Employed = 200,000 + 50,000 + 75,000 = 325,000
Hence, one can use any of the two formulas for calculating the capital employed.