Question

Net Capital Employed is equal to :
(A) Fixed Assets + Current Assets – Long term liabilities
(B) Non current Assets + Current Assets – Current liabilities
(C) Fixed Assets + Current Assets – Equity
(D) Equity + Debt
(E) Current Assets – Current liabilities
Choose the correct answer from the options given below :

• (A) and (B) only
• (B) and (D) only
• (C) and (D) only
• (A) and (D) only

Hint:

To find out Net Capital Employed, identify total capital usage without consideration of working capital.

Answer 1

The Correct Option is D

Understanding Net Capital Employed:
Net Capital Employed (NCE) represents the total capital invested in a business to generate revenue, calculated by subtracting current liabilities from total assets.
Explanation:
Fixed Assets + Current Assets – Long-term liabilities (A): Long-term Liabilities, are not the same as Current Liabilities, they are completely different terms. However the amount does show the overall capital usage. Explanation (D)
The most common formulation is Equity + Debt (Fixed assets side + current assets).
How other methods affect: % Option (B) Non current Assets + Current Assets - current liabilities : It will include non-current liabilities. % Option (C) Fixed Assets + Current Assets – Equity: This formula does not match the accounting standards and is not a valid formula. % Option (E) Current Assets – Current Liabilities: This gives us working capital.