Which component is included in the calculation of Capital Employed?

Which component is included in the calculation of Capital Employed?

• A. Cash and cash equivalents
• B. Fixed Assets + Working Capital
• C. Current Liabilities
• D. Share capital

Answer: (B)

The calculation of Capital Employed is crucial for understanding the total resources used in the operation of a business to generate profits. Capital Employed typically represents the sum of fixed assets and working capital. Fixed assets are long-term resources such as property, plant, and equipment that a business uses to produce goods or services. Working capital is the difference between current assets and current liabilities, representing the short-term financial health and efficiency of the business. By combining these two components, you can measure the total capital put to work in the business since both fixed and working capital are essential for ongoing operations. Thus, choosing the calculation of Capital Employed as Fixed Assets plus Working Capital gives a comprehensive view of the company's financial structure and resources in use, highlighting how effectively it is utilizing its assets to support its operations.

The calculation of Capital Employed is crucial for understanding the total resources used in the operation of a business to generate profits. Capital Employed typically represents the sum of fixed assets and working capital.

Fixed assets are long-term resources such as property, plant, and equipment that a business uses to produce goods or services. Working capital is the difference between current assets and current liabilities, representing the short-term financial health and efficiency of the business. By combining these two components, you can measure the total capital put to work in the business since both fixed and working capital are essential for ongoing operations.

Thus, choosing the calculation of Capital Employed as Fixed Assets plus Working Capital gives a comprehensive view of the company's financial structure and resources in use, highlighting how effectively it is utilizing its assets to support its operations.