Capital employed is a value of capital investments in a company. Basically, the capital of each company can be classified in these types of capital:
And only two kinds of those have cost of capital: equity capital and debt capital while working capital has no cost because it does not have to pay interest or dividends. Employed capital is the kind of capital that requires some return. Debt capital pays interest for debt providers while equity capital pays dividends (or appreciate in value) for shareholders. So, both these kinds of capital are employed and together represent ‘capital employed’.
‘Capital employed’ mostly is used in some financial ratios as ‘return on capital employed’ or other financial calculations.
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