I'm reading about ratios at the moment and I have a question. Few different websites will give a slightly different formula for the same ratio. I understand that some analysts will personalize a formula by adding or leaving certain numbers from the balance sheet or income statement out. Is this something only experience can teach? Knowing what could possibly be left out or added to give a more accurate answer?
I'm looking at Return on Capital Invested and there are examples of EBIT / Capital Employed or Net Income / Capital Employed. Then even Capital Employed is defined differently, some say Capital Employed is Total Assets - Current Liabilities whilst another will say Capital Employed is Average Debt Liabilities + Average Shareholders Equity.
Is the variations in formulas just a personal preference? How can one know the preferences of top investors? I suppose its down to being flexible and adaptable to the variation of the formula one should use under certain circumstances? Knowing when to use which comes with experience, am I right or am I off the mark?