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Capital employed is a common business term that has many uses and multiple meanings.  Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.  There are two methods of calculating capital employed.  One way is to add fixed assets to working capital.  Another way is to subtract current liabilities from total assets.

By itself, capital employed is not a useful number.  However, it becomes significant when used in the calculation of the return on capital employed ratio.  This ratio measures operational efficiency as well as managerial skill in using the business’ capital to make a profit.

Return on capital employed is calculated by dividing earnings before interest and taxes by capital employed.

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