Capital employed is defined as:

• A. Non-current assets only
• B. Non-current assets + investments + current assets - current liabilities
• C. Current assets only
• D. Total assets minus total liabilities

Answer: (B)

Capital employed is the funds used to acquire the assets that generate income over the long term. A practical way to measure it is total assets minus current liabilities, since current liabilities are short-term obligations that don’t tie up long-term capital. The expression non-current assets + investments + current assets − current liabilities captures exactly that: it adds up all assets (non-current, investments, and current assets) and then subtracts current liabilities, leaving the long-term resources financed for ongoing operations.

The other options don’t fit because focusing only on non-current assets ignores working capital needs; focusing only on current assets ignores the long-term resources; and total assets minus total liabilities would leave net equity rather than the long-term funds actually employed in the business.