Glossary
Capital employed
The total long-term funding invested in the business.
What it means
The total of capital and non-current liabilities (or total assets less current liabilities) used to finance the business.
Example
Capital RM40,000 + long-term loan RM20,000 = capital employed RM60,000.
Why it matters
It is the base for return on capital employed (ROCE).
In practice
Capital employed is a total taken from the statement of financial position. It is not an account of its own. It is usually owner's capital plus non-current (long-term) liabilities. It also equals total assets minus current liabilities. It represents the funds tied up in the business for the long term. It is the denominator in the return on capital employed (ROCE) ratio, which relates profit to the resources used to earn it.
Suppose a business has owner's capital of RM80,000 and a five-year bank loan of RM20,000. Capital employed is RM100,000. If profit for the year is RM15,000, the return on capital employed is 15 per cent.
Students often confuse capital employed with working capital. Working capital is short term: current assets minus current liabilities, showing whether the business can meet its immediate debts. Capital employed is long term: the total funding invested to run the business. Using the wrong one gives a misleading percentage.
If ROCE questions feel unclear, one of our teachers can calculate it with you from a real past-paper statement. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.3 Limited companies (page 16); sub-topic 6.1 Calculation and understanding of accounting ratios (page 18).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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