Capital intensity is an indicator that is the reciprocal of capital productivity, which shows the value of the value of fixed assets per unit of output produced by the enterprise. This indicator serves to determine the effectiveness of the use of fixed assets of the organization.
Instructions
Step 1
Capital intensity is calculated as the ratio of the average annual cost of fixed assets to the volume of output. The resulting value shows how much money must be invested in production assets in order to obtain the required volume of output. With an increase in the efficiency of the use of fixed assets, the capital intensity decreases, and the return on assets increases.
Step 2
It should be noted that when calculating this indicator, only the cost of fixed assets is taken into account, and not fixed assets in general. Moreover, depreciation is not deducted from their original cost. This is the most significant drawback of the capital intensity indicator, since the process of comparing it for organizations of different ages and fixed assets is rather difficult.
Step 3
For a more adequate comparison, the capital intensity indicator is calculated as the ratio of the average annual cost of fixed assets to the volume of products produced, not sold for a given period. Indeed, when determining the capital intensity, it is important to find out the efficiency of the use of funds, which means that information on the amount of products sold can be disregarded.
Step 4
The capital intensity indicator is used in the practice of planning calculations, in the design of construction, in determining the volume of capital costs, etc. In addition, it must be remembered that, to a large extent, the value of this indicator is directly affected by the efficiency of production in the organization. For example, when switching to work from a one-shift regime to a two-shift or three-shift regime, the efficiency of using the existing fixed assets increases, which means that the capital intensity indicator decreases. Such optimization of production can give a huge economic effect for the enterprise as a whole.
