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What goes under the Capital Employed, when calculating the ROI? (PP&E, Inventory, AR, AP, Cash?)

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Hi,

Not sure if you are referring to ROI or ROCE (Return on Capital Employed).

The first is Profit from Investment / Cost of investment and is more "cash flow" oriented, so here you do not need to perform a capital employed calculation

If you are trying to compute ROCE = EBIT / Capital Employed (many version of it exists - just type ROCE on google) you can basically calculate Capital Employed via

Capital Employed = Total Assets - Current Liabilities = Equity + Non Current Liabilites

Many people do include different terms. My favourite is Capital Employed = Fixed Assets + Working Capital

In Fixed Assets you have PP&E, in Working Capital you have AR, AP and Inventory.

Regarding cash you can have different ideas - type on google corporate finance Capital employed to deep dive about this. You will find ton of precise indications

Hope it helps.

Paul

Hi,

Not sure if you are referring to ROI or ROCE (Return on Capital Employed).

The first is Profit from Investment / Cost of investment and is more "cash flow" oriented, so here you do not need to perform a capital employed calculation

If you are trying to compute ROCE = EBIT / Capital Employed (many version of it exists - just type ROCE on google) you can basically calculate Capital Employed via

Capital Employed = Total Assets - Current Liabilities = Equity + Non Current Liabilites

Many people do include different terms. My favourite is Capital Employed = Fixed Assets + Working Capital

In Fixed Assets you have PP&E, in Working Capital you have AR, AP and Inventory.

Regarding cash you can have different ideas - type on google corporate finance Capital employed to deep dive about this. You will find ton of precise indications

Hope it helps.

Paul