why dividend paid/distributed is added to terminal/closing capital employed to calculate average capital employed. there was a particular sum where closing CE is calculated first and then 100% dividend paid is added and 1/2 of current year profits is deducted to calculate average CE. please also help me by providing notes of valuation chapter as i have lots of confusion wrt. capital employed and future maintainable profits. thank you..
28 May 2015
Capital employed is taken as average capital employed which can be computed as opening capital employed plus half of current year's profit or closing capital employed less half of current year's profit. As dividend is paid out of current year's profit it is added back so that the full year's profit gets included in the closing capital employed and then half of current year's profit is deducted.
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