Business Studies – 5.4.1 The main elements of a statement of financial position | e-Consult
5.4.1 The main elements of a statement of financial position (1 questions)
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Capital employed (CE) represents the total amount of money invested in the business to generate goods or services. It's essentially the funds used to fund the day-to-day operations of the company. It's calculated as: Current Assets - Current Liabilities.
Two reasons why CE is important are:
- Liquidity Assessment: CE provides an indication of a company's financial strength and ability to meet short-term obligations. A higher CE generally suggests a more stable and liquid position.
- Efficiency Indicator: CE can be used to assess how efficiently a company is using its resources. A lower CE relative to turnover might indicate efficient use of capital. Conversely, a high CE relative to turnover could suggest inefficient use of capital.