When calculating ROCE, what should be included in the capital employed?

The correct answer focuses on the concept of capital employed, which is a critical component in calculating Return on Capital Employed (ROCE). Capital employed generally includes the total funds that are used by a company to generate profits. This encompasses long-term debt and equity, as both represent the sources of finance that support a company's operations and investment in assets.

In essence, long-term debt reflects the liabilities the company has incurred for funding that are not expected to be settled within the next 12 months, while equity signifies the owners' investment in the business. Together, they provide a complete picture of the capital that is actively employed to generate earnings, hence why they are included in the calculation of ROCE.

The other options do not capture the entirety of what capital employed should be: cash reserves alone do not reflect the broad range of funding sources; current liabilities are typically not included in the calculation as they represent short-term obligations rather than long-term funding; and current assets alone do not represent the capital that is invested for generating revenue over the long term.