Question

The best definition of 'Capital employed' in calculating the rate of return on investment is:

• A. Current assets + gross fixed assets
• B. Current assets + net fixed assets
• C. Working capital + gross fixed assets
• D. Working capital + net fixed assets

Answer 1

Answer: (C)

Working capital + gross fixed assets

Capital employed is the total funds employed by the business to earn profits. The formula that is best suited for calculating capital employed in calculating return on investment is Working capital + Gross fixed assets. Working capital = current assets - current liabilities whereas gross fixed assets is the total value of long term assets being tangible or intangible.