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

ROI calculation
New answer on Aug 05, 2019
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Kheireddine asked on Jul 05, 2019
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Paul
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replied on Aug 05, 2019
Project Leader at BCG - 5 years consulting experience|Coached 300+ candidates |Interviewer at BCG | 2nd Session free

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

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Paul

Project Leader at BCG - 5 years consulting experience|Coached 300+ candidates |Interviewer at BCG | 2nd Session free
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