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Hello,
I have a question regarding ¨capital employed¨ from the question 183 from the Kaplan Exam Kit.
It´s required to calculate ROI, so we need to find ¨capital employed¨.
To find it the following information is provided: ¨net value of all assets and liabilities to be $4500m at the start of the year and $4890m at the end.¨
From the Kaplan complete text:
¨The value of assets employed could be either an average value for the period as a whole or a value as at the end of the period. An average value is preferable¨ .Nevertheless, value $4500m is used in answers as a capital employed. Why ¨the start value¨ was used but not ¨the end¨ or ¨average¨?
It is strange of Kaplan to have written that.
The value at the start of the period is better than the end value, because it is the assets at the start of the period that will have been earning the profits.There is no rule about which figure to use. In the exam there will probably only be one figure given and so you will have no choice, otherwise it is best to use the opening figure (unless, obviously, the question says to do different).
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