Question

Choose the correct equation with respect to capital employed from the following:

Options

• Capital Employed = Shareholders’ Funds - Non-current Liabilities

• Capital Employed = Non-current Assets + Net Working Capital

• Capital Employed = Non-current Assets - Net Working Capital

• Capital Employed = Share Capital + Reserves and Surplus + Current Liabilities

Answer 1

Capital Employed = Non-current Assets + Net Working Capital

Explanation:

Under the assets-side (net assets) approach, Capital Employed represents the total long-term investment actively utilised in business operations. It is calculated by adding Non-current Assets (long-term investments and fixed assets) to Net Working Capital (Current Assets minus Current Liabilities). This captures the sum of a firm’s long-term operational infrastructure and the net short-term liquid resources that keep day-to-day operations moving.