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Capital employed

The terms in financial market might seem to appear closely related. But the words have different meaning and are often difficult for common people to understand. To site an example, the word capital employed has different meanings and these meanings are not generally understood properly. But in the most general meaning, the word refers to the capital required to start and function a business. This capital investment is not the assets, but the stock, liabilities and shares needed for a business to execute properly.

Capital employed is calculated as the total assets minus the liabilities. The sum of non-current assets and the working capital will also sum to capital employed. To get a long term funding, the best source is non-current and equity. Another source can be a short term debt. These long term sources can sum to form capital employed.

Capital employed is mostly used in financial analysis. This can be used to evaluate the return on capital employed. This can be used to substitute return on assets and return on equity. The actual calculation of capital employed is fixed assets plus current assets less the liabilities. This is a measure of the assets that will contribute to the company’s ability. This in turn will be used to generate revenue for the company. The funds employed refer to the fund needed to run the business of an enterprise. It can be a method of employing capital to make an investment.

Capital employed can be calculated as the value of all assets that are currently employed in the company. It will be the sum total of all the capital employed in the company for acquiring profit. It is a value expressed as the sum fixed assets and working capital. Capitalized employment can be used in different contexts. Hence, the meaning can vary greatly. Based on the meaning, the definition also can change. Hence, it is often difficult to define the most apt meaning of capital employed.

This is mostly used to find the return on capital employed. The capital employed never appears on the income statement. It rather comes as a fixed asset value. It can appear as a debit in the balance sheet. However, the depreciation of this value can appear on the income statement. The timing of the expenses hence changes. This is in turn a credit in the long term asset value.

 

Capital turn over:

Financial market is full of jargons that a common man might find it difficult to understand. But these terms have great relevance in the calculation of the gains and losses incurred during the dealings with financial market. Capital turn over is a word commonly heard in the stock market. It is a ratio calculated by dividing the annual sales of the company with the average of the stock holder’s equity.

This is used as a value to evaluate the return on the capital equity. It also gives a measure of the effectiveness with which the company is utilizing the stock holder’s equity in the process of generating the revenue for the company. It is also referred to as equity turn over.

The effectiveness is directly proportional to the company’s turn over. If the turn over is high, the profit made by the company through sales is also maximum. This profit will be more than the money used by the company in making the sales through funding. This is also a ratio of measuring how well a company can grow in its capital investment from the current value.

If the capital turn over is low, it indicates a high profit margin. If the turn over is divided by the net assets of the company, it will give the net working turn over. Capital turn over also known as asset turn over is measure of the capital intensiveness of the company’s business. The total sales are divided by the capital employed in the company to get the asset turn over. If the number is small here, the capital required for making particular sales will be high.

Capital turn over is quite different from fixed asset turn over which is the ratio of sales to the fixed assets of the company. Portfolio turn over ratio and receivable turn over ratio is to be differentiated from the original capital turn over ratio as these are different concepts though they are related as they are based on assets and capitals.

Each of the term in the financial dictionary has a great sense in meaning. This is because; each of the word has several aspects when the situation in which the calculation is made varies. The variation in the calculation brings about changes in the amount generated as well. Since capital turn over is the actual calculation of the company’s performance, the value has to be calculated accurately.

 

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