What about capital employed

This method focuses on the assets the capital is invested in.

$$\text{Capital Employed} = \text{Total Assets} - \text{Current Liabilities}$$

Here, Total Assets include both non-current (fixed) assets and current assets. Current Liabilities are short-term obligations due within one year.

This method focuses on where the capital came from.

$$\text{Capital Employed} = \text{Share Capital} + \text{Reserves} + \text{Non-Current Liabilities}$$

• Share Capital (or Equity) represents the funds invested by the owners.
• Reserves are accumulated profits retained in the business.
• Non-Current Liabilities (or Long-Term Debt) are long-term borrowings or obligations.

Both formulas should yield the same result, as they represent different views of the same financial position. Capital employed is often used to calculate the Return on Capital Employed (ROCE), which measures how efficiently a company is using its capital to generate profits.

For example, if a company has:
Total Assets = $800,000
Current Liabilities = $150,000

Using the asset side formula: $\text{Capital Employed} = \$800,000 - \$150,000$ $\text{Capital Employed} = \boxed{\$650,000}$