Return on capital employed là gì

     
Adam Hayes is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative sầu trading expertise, Adam is an expert in economics và behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7 & 63 licenses. He currently researches và teaches at the Hebrew University in Jerusalem.

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Peggy James is a CPA with 8 years of experience in corporate accounting & finance who currently works at a private university.

What Is Capital Employed?

Capital employed, also known as funds employed, is the total amount of capital used for the acquisition of profits by a firm or project.Capital employed can also refer khổng lồ the value of all the assets used by a company to lớn generate earnings.


By employing capital, companies invest in the long-term future of the company. Capital employed is helpful since it"s used with other financial metrics to lớn determine the return on a company"s assets as well as how effective management is at employing capital.


Capital employed is derived by subtracting current liabilities from total assets; or alternatively by adding noncurrent liabilities to owners" equity.Capital employed tells you how much has been put lớn use in an investment.Return on capital employed (ROCE) is a comtháng financial analysis metric lớn determine the return on an investment.

Formula và Calculation of Capital Employed

Capitalemployed=Totalassets−Currentliabilitieseginaligned extCapital employed &= extTotal assets - extCurrent liabilities \ &= extEquity + extNoncurrent liabilities endalignedCapitalemployed​=Totalassets−Currentliabilities​


Capital employed is calculated by taking total assets from the balance sheet và subtracting current liabilities, which are short-term financial obligations.


Capital employed can be calculated by adding fixed assets to lớn working capital, or by adding equity—found in shareholders" equity section of the balance sheet—to non-current liabilities, meaning long-term liabilities.


What Capital Employed Can Tell You

Capital employed can give sầu a snapshot of how a company is investing its money. However, it is a frequently used term that is at the same time very difficult to lớn define because there are so many contexts in which it can be used. All definitions generally refer lớn the capital investment necessary for a business to lớn function.

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Capital investments include stocks & long-term liabilities. It also refers khổng lồ the value of assets used in the operation of a business. In other words, it is a measure of the value of assets minus current liabilities. Both of these measures can be found on the balance sheet. A current liability is the portion of debt that must be paid baông chồng within one year. In this way, capital employed is a more accurate estimate of total assets.


Capital employed is better interpreted by combining it with other information khổng lồ khung an analysis metric such as return on capital employed (ROCE).


Return on Capital Employed (ROCE)

Capital employed is primarily used by analysts to determine the return on capital employed (ROCE). Like return on assets (ROA), investors use ROCE to lớn get an approximation for what their return might be in the future. Return on capital employed (ROCE) is thought of as a profitability ratio. It compares net operating profit to capital employed và tells investors how much each dollar of earnings is generated with each dollar of capital employed.


Some analysts prefer return on capital employed over return on equity & return on assets since it takes long-term financing into lớn consideration, và is a better gauge for the performance or profitability of the company over a longer period of time.


A higher return on capital employed suggests a more efficient company, at least in terms of capital employment. A higher number may also be indicative of a company with a lot of cash on h& since cash is included in total assets. As a result, high levels of cash can sometimes skew this metric.


Return on capital employed is calculated by dividing net operating profit, or earnings before interest và taxes (EBIT), by employed capital. Another way to lớn calculate it is by dividing earnings before interest & taxes by the difference between total assets và current liabilities.


Example Of How lớn Use Capital Employed

Let"s calculate the historical return on capital employed by three tech companies—Alphabet Inc., Apple Inc., & Microsoft Corporation—for the fiscal year ended 2017.


(in millions)AlphabetAppleMicrosoft
EBIT$19,760$66,412$25,371
Total Assets (TA)$197,295$375,319$241,086
Current Liabilities (CL)$24,183$100,814$64,527
TA - CL$173,112$274,505$176,559
Return on Capital Employed0.11410.24190.1437

Of the three companies, Apple Inc. has the highest return on capital employed of 24.19%. A return on capital employed of 24.19% means that for every dollar invested in capital employed for 12 months ended September 30, 2017, the company made 24 cents in profits. Investors are interested in the ratio khổng lồ see how efficiently a company uses its capital employed as well as its long-term financing strategies.


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