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A simple question would capital employed change if a company get advance from customers and invest in short term bank instruments. Thanks
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It depends, Capital Employed= Fixed assets + Current assets – current liabilities
So, advances from customers will come under current liabilities and short term bank investment under current assets.
Based on this if advances from customer is equal to short term bank investment then there will be no change in capital employed. and if advances from customers are less than bank investment then capital employed will reduce.
@jk0323 thanks dear for your answer. Suppose a company takes advances from customer and invest in fixed assets even than rose will not change. what do you say. when a company takes advances from customer where would it put that money. in the bank, buy treasury bills, mutual funds all are current assets, OR buy machinery from it even though roce will not change. I asked this Q to my friend who is CFA he says roce will increase, asked my other friend who is research analyst he said roce will decrease, did my calculations thru formula I found it does not increase. man I am going crazy.
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