The formula for calculating the Average Capital Employed is:
\[ ACE = \frac{OC + CC}{2} \]
Where:
Average capital employed is a financial metric used to measure the average amount of capital that a company has invested in its business over a specific period. It is calculated by taking the sum of the opening capital and closing capital for the period and dividing by two. This metric is useful for assessing the efficiency and profitability of a company’s use of its capital. It provides a more accurate picture of the capital employed over time, as it accounts for fluctuations in capital levels throughout the period.
Let's assume the following values:
Using the formula to calculate the Average Capital Employed:
\[ ACE = \frac{50000 + 70000}{2} = \frac{120000}{2} = 60000 \]
The Average Capital Employed is $60,000.