Financial Statement Analysis
- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis
- Liquidity Ratios
- Turnover Ratios
- Profitability Ratios
- Profit Margin
- Gross Profit Margin Formula
- Operating Profit Margin Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula
- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- Financial Leverage Ratio
- Net Debt Formula
- Leverage Ratios
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
Capital Employed Formula
Any business needs to employ some funds, resources or capital for running the business with the intent to earn profits. This has given rise to the idea of capital employed, which can be estimated in various ways in different contexts, depending on how capital might be defined for calculation purposes. However, there are two primary ways in which it can be calculated.
Capital Employed Formula # 1
- Here total assets include fixed assets at their net value. Some prefer to use original cost but some others use replacement cost after depreciation.
- To this is added any Cash in hand, cash at bank, bills receivable, stock and other current assets.
- Finally, all capital investments in business operations are added to these items to arrive at the value for total assets in this calculation.
- Next, subtract current liabilities from the value arrived at for total assets.
Capital Employed Formula # 2
In Capital Employed calculation, non-current assets = long-term assets, whose full value cannot be realized within the current financial year. This typically includes the fixed assets along with intangible assets, brand recognition, and intellectual property. The capital employed formula also includes any investments made in other businesses.
Working capital can be defined as a quick measure of the operational efficiency of a company and its overall financial health.
Working Capital = Current Assets – Current Liabilities.
Capital Employed Example
All of the figures utilized for Capital Employed calculation can be found on the balance sheet of the company.
Capital Employed Calculation using 1st Formula
- To calculate this for Company ABC based on the first method, we look for the figure against “Total assets.” Let us suppose it is $42000000.
- Next, we look for the figure against “Total Current Liabilities” as listed in the balance sheet. Let us suppose this figure is $25000000.
Now, we calculate like this:
- CE = Total Assets ($42000000) – Current Liabilities ($25000000) = $17000000
Capital Employed Calculation using 2nd Formula
Capital employed calculation of the second method would require looking up for following measures on the balance sheet of Company ABC, non-current assets, current liabilities and current assets. We can find both current assets and non-current assets listed in the Assets section of the balance sheet and current liabilities on the Liabilities section.
- Let us suppose, Non-Current Assets = $105 Million
- Current Liabilities = $54 Million
- Current Assets = $65 Million
- Now, we calculate like this:
- CE = Non-Current Assets ($105000000 + Working Capital (Current Assets ($65000000) – Current Liabilities($54000000))
- = $105 Million + $11 Million = $116 Million
Explanation of Capital Employed Formula
Capital Employed Formula is calculated to assess the total resources employed for acquisition of profits. It can be calculated in different ways as we have described above. However, the basic idea remains the same. A higher value of Employed Capital, especially when a major chunk of it is not sourced from shareholders’ equity, indicates a proportionately higher level of risk. Though the higher level of risk might make investors wary of investing in the company, it also hints at aggressive business expansion plans, which if successful, could result in much higher returns as well on investments. All these factors are taken into account before investing in any business.
Use and Relevance of Capital Employed Formula
Generally, it is put to good use in estimations on how well a company might be using its capital to enhance its profitability. This is achieved by calculating Return on Capital Employed (ROCE):
EBIT is also known as operating income which is divided by the figure for employed capital to get ROCE. This is especially useful in comparing utilization of capital in companies operating in capital-intensive industries.
Capital Employed Calculator
You can use the following Capital Employed Formula Calculator
|Capital Employed Formula =||Total Assets – Current Liabilities|
|0 – 0 =||0|
Capital Employed Formula in Excel (with excel template)
Let us now do the same capital employed example of the formula in Excel.
This is very simple. In the first method, You need to provide the two inputs of Total Assets and Total Current Liabilities. And in the second method, you need to provide the three inputs of Non-Current Assets, Current Liabilities, and Current Assets.
You can easily calculate the capital employed in the template provided.
Calculation by First Method
Calculation by Second Method
You can download this capital employed template here – Capital Employed Excel Template
Video on Capital Employed Ratio
This has been a guide to Capital employed formula, its uses along with capital employed example. Here we also provide you with Capital Employed Calculator with downloadable excel template. You may also refer to the following to learn more about Financial Ratios