Get Active in Our Amazing Community of Over 450,000 Peers!
What goes under the Capital Employed, when calculating the ROI? (PP&E, Inventory, AR, AP, Cash?)
Overview of answers
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