What term describes the total long-term sources of finance used by a business, including loans, share capital, and reserves?

What term describes the total long-term sources of finance used by a business, including loans, share capital, and reserves?

• A. Net Current Assets
• B. Current Liabilities
• C. Owners' Equity
• D. Capital Employed

Answer: (D)

This item tests understanding of long-term funding used to finance a business. Capital employed describes the total long-term sources of finance, including loans, share capital, and reserves. It represents the funds tied up in the business’s assets that come from long-term sources, and it can be calculated as total assets minus current liabilities or as long-term liabilities plus shareholders’ equity. Net current assets is only the difference between current assets and current liabilities, so it doesn’t capture long-term funding. Current liabilities are short-term obligations and don’t reflect long-term sources. Owners’ equity covers equity alone and doesn’t include debt, whereas capital employed includes both. So capital employed is the best fit for describing the total long-term sources of finance.

This item tests understanding of long-term funding used to finance a business. Capital employed describes the total long-term sources of finance, including loans, share capital, and reserves. It represents the funds tied up in the business’s assets that come from long-term sources, and it can be calculated as total assets minus current liabilities or as long-term liabilities plus shareholders’ equity. Net current assets is only the difference between current assets and current liabilities, so it doesn’t capture long-term funding. Current liabilities are short-term obligations and don’t reflect long-term sources. Owners’ equity covers equity alone and doesn’t include debt, whereas capital employed includes both. So capital employed is the best fit for describing the total long-term sources of finance.