Capital productivity is the formula for calculating the balance sheet. Let's look at a specific example. How to evaluate the efficiency of using fixed assets: formulas for capital productivity, capital-labor ratio and capital intensity Calculation of capital intensity of fixed assets
DEFINITION
The capital intensity indicator is financial ratio. It is inversely related to the capital productivity indicator. The capital intensity formula on the balance sheet characterizes the cost of fixed assets of production per each ruble of manufactured products.
The capital intensity indicator is measured in rubles, and its calculation requires data from the enterprise’s financial statements.
The basic formula for capital intensity is as follows:
F=OSsg/V
where Ф is capital intensity in rubles,
OSsg – average annual cost of fixed assets (rub.),
B – the amount of revenue from sales of products (rub.).
The capital intensity indicator is the inverse indicator of capital productivity, so it can be calculated using another formula:
Capital intensity = 1/Capital productivity
The average annual cost of fixed assets is determined by the following formula:
OSsg = (OSng + OS kg) / 2
Here OSsg is the average annual cost of fixed assets (funds),
OS ng and OS kg are the corresponding indicators of fixed assets at the beginning and end of the year.
Revenue from the sale of sold products is determined by multiplying the price of the product by its quantity:
B = C * K
Formula for capital intensity on balance sheet
The formula for capital intensity on the balance sheet uses the cost of fixed assets (initial and residual value).
Formula for capital intensity on balance sheet:
F = line 1150/ line 2110
Here Ф is capital intensity (rub.),
Line 1150 from the balance sheet (cost of fixed assets),
Page 2110 from the income statement (revenue from sales of products).
Standard for capital intensity indicator
The formula for capital intensity on the balance sheet shows the value of fixed assets, which is part of each ruble of manufactured products. However, there is no single standard value for the capital intensity indicator.
If we consider the indicator in dynamics, then the smaller its value becomes, the more efficient the degree of equipment utilization. A favorable sign for any company is a tendency towards negative dynamics of the capital intensity indicator. If the capital intensity increases, and the capital productivity indicator falls accordingly, then we can talk about the following fates:
- The production capacity of the enterprise is used irrationally,
- The need to search for additional sources of reserve, etc.
Different economic sectors will have specific results when calculating the capital intensity formula on the balance sheet. For this reason, the analysis of the capital intensity ratio is carried out either for a similar industry or for the same type of product.
Types of capital intensity
Capital intensity can be of several types depending on the participation of fixed assets in the production process:
- Full(used to justify the rate and proportion of growth in expanded reproduction, when assessing the effectiveness of the industry structure and location of production, pricing and determining the needs for fixed assets for future periods);
- Straight(taken into account in accordance with the cost of fixed assets of any production process in the value of the increase);
- Indirect(contains the value of fixed assets operating at related enterprises and indirectly participating in the production of related and component products of a particular enterprise).
Examples of problem solving
EXAMPLE 1
| Exercise | Calculate the capital intensity of the enterprise if the following accounting indicators for 2 years are given: Enterprise revenue (line 2100 of the financial results report) 1 year – 400 thousand rubles, 2nd year – 350 thousand rubles. Cost of fixed assets (line 1150 of the balance sheet): 1 year – 280 thousand rubles, 2nd year – 270 thousand rubles. |
| Solution | Formula for capital intensity on balance sheet: F = line 1150/ line 2110 F (1 year) = 280/400 = 0.7 rubles, F (2 year) = 270/350 = 0.77 rubles Conclusion. We see that for every ruble of goods produced, the amount of fixed assets is 70 kopecks in the first year, and 77 kopecks in the second year. The figure increased in the second year, reflecting its less efficient performance. |
| Answer | F (1 year) = 0.7 rub., F (2 year) = 0.77 rub. In the second year, the efficiency of the enterprise decreased. |
EXAMPLE 2
| Exercise | Determine capital intensity according to the balance sheet if the following indicators are given: Line 2110 (amount of revenue): 1 year – 210,500 rub., 2nd year – 190,200 rub. Line 1150 (cost of fixed assets): As of December 31 of the first year - 140,250 rubles. As of December 31 of the second year - 116,800 rubles. |
| Solution | Formula for capital intensity on the balance sheet to solve this problem: F = line 1150/ line 2110 F (1 year) = 140,250 /210,500 = 67 kopecks, F (2 year) = 116,800 /190,200 = 61 kopecks. Conclusion. We can conclude that to obtain an income of 1 ruble in the 1st year, 67 kopecks of capital was used, and in the second year, 61 kopecks. At the same time, the coefficient decreased, which indicates an increase in the efficiency of its work. |
| Answer | F (1 year) = 67 kopecks, F (2 year) = 61 kopecks. |
One of the important indicators of the efficiency of using fixed assets of an enterprise (industry) is capital intensity ( TO fund.e). Carrying out a plan-fact analysis of this value for the selected period will allow us to assess how effectively fixed capital is used.
Capital intensity is a financial and economic coefficient that characterizes the rational use of the enterprise's introduced production assets (intangible objects that ensure the production of goods). It reflects fixed assets in value terms that correspond to one ruble of goods produced.
When determining the coefficient for an industry, its value shows the value expression of production assets (OPF) of the industry per one ruble of gross marketable output.
This value characterizes the degree of optimization of the product manufacturing process as a whole.
There are 2 types TO fund.e:
1. Straight which reflects the effectiveness of the use of industrial enterprises directly involved in the production of products;
2. Full, on the basis of which the effectiveness of the operation of not only the OPF, but also the means that are indirectly related to the production process is determined.
The coefficient under consideration does not have standards, and it is recommended to consider it over several years in order to determine the optimal level for the organization. An increase in the indicator reflects a decrease in the output of production equipment. And its decrease relative to the previous period shows that the company has become more efficient in using production capacity and is increasing its turnover.
That is, the lower the value obtained, the better for the company. By comparing the value of the coefficient with the industry average, it is determined to what extent the organization’s performance lags behind or is ahead of other enterprises.
Capital intensity is the inverse of . Thus, if the dynamics of its increase are visible, one should rationally approach the organization of the production process and look for ways to optimize it.
Factors affecting capital intensity
Factors such as:
1. Production volume and sales volume;
2. Qualitative and structural characteristics of fixed assets, their parameters (introduction of new equipment, duration and number of downtimes, forced costs for ergonomics and safety precautions, number of equipment shifts);
3. OPF wear level;
4. A coefficient showing how optimally the production area is loaded;
5. Productive capacity.
Ways to reduce capital intensity
Possible solutions to reduce the indicator include:
1. Updating production facilities in order to maintain their optimal condition;
2. Introduction of new high-tech equipment with increased capacity;
3. Improving the quality characteristics and competitive properties of products in order to increase revenue. Studying and entering new markets.
(FV) reflects the extent to which employees are provided with fixed assets.
In other words, the PV determines the value of fixed assets per employee. For an objective assessment, a comparison is made of the growth rate of capital-labor ratio and labor productivity (LP). The lagging growth rate of PT reflects the ineffective use of organizational resources and indicates the need to take measures to improve the situation.
By analyzing together the values of three indicators - capital intensity, capital productivity and capital-to-capital ratio - management can timely identify the company's problems that threaten the functioning of the company and eliminate these shortcomings.
The value is determined by dividing the cost of OPF by the volume of produced (sold) products or as a coefficient inversely proportional to capital productivity:
In practice, the value is calculated from the organization’s financial statements using forms No. 1 (balance sheet) and No. 2 (financial performance report):
or TO fund.e = (line 1150n+line 1150k)*0.5/line 2110
Pitfalls of analysis
With the introduction of advanced types of equipment and technology that help save enterprise resources, the growth rate of capital-labor ratio may outpace the growth rate of labor productivity. Thus, this leads to an increase in capital intensity (a decrease in capital productivity). A decrease in the degree of use of general fund with significant savings in material and labor resources does not mean a decrease in the efficiency of the company.
In this case, an increase in the growth rate of Kfond. It is economically beneficial, since there is an increase in other indicators of the state of the enterprise and there is a saving in material and labor assets, which compensates for losses. The growth rate of net profit is faster than the growth rate of the Kfond. It allows you to compensate for losses from an increase in capital intensity.
The disadvantage of the coefficient is that the calculation does not take into account the cost of production. Assessing the state of an enterprise based on one calculated value is not objective enough. An analysis of the economic situation of a company is carried out on the basis of a group of indicators in the aggregate, and on this basis an objective conclusion is drawn.
Based on the above information, we can summarize.
Capital intensity- an important indicator of the financial condition of the company, which is more correctly calculated based on the financial statements. It is better to analyze the obtained result in conjunction with other ratios (capital-labor ratio, capital productivity, labor productivity and others) to obtain a clearer picture of the state of affairs of the company.
Reading time: 9 minutes. Views 133 Published 11/11/2018
Every owner of a large company wants to have information about the overall performance of the company. Special tools are used to assess the company's performance. To consider the efficiency of economic activity, it is necessary to conduct an in-depth analysis, using data for the last few years in calculations. This approach makes it possible to obtain information about the results of labor activity and determine further ways of production development. In order to clearly reflect production efficiency, indicators such as profitability, capital productivity and capital intensity are used. In this article, we propose to discuss the question of what capital intensity is and how this coefficient is calculated.
Efficiency is considered one of the basic phenomena for assessing the performance of an enterprise based on the results of the period
Definition of capital intensity
Capital intensity is one of the financial ratios used to reflect the funds that must be transferred to fixed assets of production. These resources will be used for the subsequent production of commercial products. Using this tool allows you to find out how much money needs to be spent to make a profit of one ruble. A company's fixed assets include assets such as real estate, automobiles, and manufacturing equipment. This category also includes all means that are used to ensure the regular operation of production. Also, the instrument in question is often used to divide a specific business segment into several groups, according to the volume of capital investments in non-current funds.
This economic instrument began to be used in the sixties of the last century. For the first time, the concept of capital intensity was used in compiling the reporting balance of fixed assets of the national economy. During the compilation of these calculations, it was revealed that the specifics of the coefficient depend on the specific line of business and the product’s belonging to a specific product group. This is why experts recommend using this tool only when comparing similar products with similar characteristics.
Capital intensity shows the amount of money that needs to be invested in production development in order to reduce overall costs.
Entrepreneurs using this indicator have the opportunity to produce a larger quantity of marketable products without increasing the item of regular costs. As a rule, such coefficients are used in those industries that require large investments. In most cases, in such a business, production capacity is not tied to other components. This indicator is often used in the field of mining, construction and timber harvesting.
Types of capital intensity
The type of capital intensity depends on the degree of use of fixed production assets (FPAs) in the process of manufacturing goods. Today, there are the following types of the coefficient under consideration:
- Full view – This indicator reflects the result of adding indirect and direct capital intensity.
- Direct view– this indicator is often called incremental capital intensity. The value of the coefficient depends on the total cost of fixed production assets.
- Indirect view– this indicator is based on the cost of fixed production assets used by factories that manufacture components and consumables for the main products of a particular enterprise.
In addition to the above coefficients, there is such an indicator as the total capital intensity of goods. This indicator is used when it is necessary to justify the increased speed of expansion of the company. Based on the information obtained using this analytical tool, it is possible to assess the performance of a specific market segment and make plans for the effective use of fixed assets.
Capital intensity, along with capital productivity and profitability indicators, allows you to most fully reflect the efficiency of the organization. How is it calculated
Commodity capital intensity is an indicator that depends on the effectiveness of production activities. A company switching from single-shift production to non-stop production consumes essential resources significantly more. In such a situation, a drop in the coefficient is observed. A decrease in the value of this indicator demonstrates an increase in production efficiency due to the rational use of appropriate equipment. From all of the above, we can conclude that in order to increase economic performance, company management should optimize the production process. The expansion of the company also allows us to achieve the necessary economic result.
The main disadvantage of using this tool is the absence of manufactured products in cost calculations. This is explained by the fact that the leadership of the USSR was aimed at large-scale production. Many industries have seen rising costs despite declining quality of end products. Based on the foregoing, we can conclude that the use of this tool is advisable only if it is necessary to evaluate a specific department or compare one workshop with another. Experts conducting such an analysis need to take into account the fact that a certain part of the products remains unclaimed and is stored in a warehouse. The price of the rest of the goods may differ from forecasts. This means that the information obtained from the analysis rarely shows the real picture.
Many experts note that the use of technology that saves energy, financial and labor resources can lead to an increase in the coefficient under consideration. In this case, an increase in the coefficient does not indicate a decrease in the efficiency of the production process. In this case, the capital intensity of products increases due to compensation for losses from a decrease in capital productivity.
Formula for accounting (balance sheet)
In order to determine the value of the coefficient under consideration, all accounting reports that reflect the company's income are required. In addition, you will need a balance sheet that describes all fixed assets. To determine the capital intensity, the formula “Line 1150 BB / STR 2110 OFR” is used. The first line indicates the price of fixed assets, and the second - the amount of revenue received during the reporting period.
In order to find out the capital intensity of goods, the accountant needs to divide the cost of fixed assets by the gross profit received during the reporting period. At the next stage of calculations, it is necessary to divide the cost of fixed assets by the profit received from the sale of manufactured products.
Capital intensity shows the ratio of the size of fixed assets to one of the types of profit General formula
The formula for calculating capital intensity on the balance sheet is somewhat different from the generally accepted procedure for making calculations. In order to determine the value of the coefficient under consideration using the general formula, it is necessary to divide the average annual cost of fixed assets by the revenue received through the sale of marketable products. Such calculations can be made only if you have information about the company’s income for the billing period. To obtain this information, you need to multiply the cost of one commodity unit by the total volume of goods produced. To obtain information about the average annual cost of fixed assets, you should add the cost of fixed assets at the beginning of the year to the price of fixed assets at the end of the reporting period. To determine the value of the coefficient under consideration, you can use an analytical tool such as capital productivity. For this purpose, it is necessary to apply the formula “1/capital productivity = capital intensity”.
Some financial experts recommend that people making such calculations consider different types of profits. To calculate the coefficient based on the income received from the sale of commercial products, the formula is used: “Profit received from the sale of products / average annual cost of fixed assets.” In order to obtain information about the value of this income item, it is necessary to subtract the costs of ensuring the production process from the total revenue. In addition, when making calculations, you can use an indicator such as gross income. In this case, it is necessary to divide the average annual cost of fixed assets by the amount of gross profit. To determine the value of the latter indicator, the technological cost of the products should be subtracted from the company's revenue received through the sale of goods.
The capital intensity formula given above is often referred to as commodity capital intensity. This name is explained by the fact that the result of the calculations allows us to assess the level of operation of the enterprise's assets during the production process. It is important to note that such calculations can include even an unfinished cycle of manufacturing commercial products.
Calculation example
In order to better understand the procedure for applying the coefficients under consideration, it is necessary to give a practical example. Let's look at the procedure for drawing up calculations based on information from the balance sheet of the organization Vladimir and KO LLC. As we noted above, when making such calculations it is very important to compare several reporting periods. In our example, we will consider a comparison of economic indicators at the end of two thousand sixteen and two thousand seventeen.
The value of the company's fixed assets is reflected in line number “1150”. In two thousand and sixteen, the price of the operating system was ninety thousand rubles. At the end of two thousand and seventeen, this figure increased to one hundred and thirty thousand rubles. The company's revenue is recorded in line 2110 of the balance sheet. On December thirty-first two thousand and sixteen, the company earned one hundred and fifty thousand rubles. The following year, the company's revenue was one hundred and ninety thousand.
Gross profit is reflected in the “2100” line. In the sixteenth year, this figure was one hundred thousand rubles, and in the seventeenth the company received one hundred and twenty thousand rubles in gross income. Profit received from the sale of marketable products is indicated in the line number “2200”. The value of this indicator at the end of two thousand and sixteen was seventy thousand. In two thousand and eighteen, the company managed to earn fifteen thousand rubles more.
In order to determine the capital intensity of the fixed assets, the company's accountant needs to add together the value of the assets at the end of the sixteenth and seventeenth years. The result obtained must be divided by the revenue received at the end of the billing period. Having performed simple arithmetic operations, we get a result equal to 0.58 kopecks. It is this amount of fixed assets that is used to obtain one ruble of net profit.
Capital intensity is also reflected as the reciprocal of capital productivity What influences the indicators
The performance of a manufacturing company depends on many factors, among which it is necessary to highlight the speed of delivery of consumables, raw materials and components. The value of the total capital intensity depends on the following indicators:
- Direct capital intensity– demonstrates the amount of investment spent on the purchase of fixed assets that are used during the production process.
- Indirect capital intensity– reflects the amount of investment made in the acquisition of OS for a company acting as a business partner.
When making such calculations, it is necessary to take into account the number of counterparties with whom the company cooperates. This approach allows you to obtain the most relevant information.
Ways to reduce capital intensity
Based on the above, we can conclude that reducing the coefficient under consideration allows increasing the company’s performance. For this purpose, it is necessary to regularly update equipment and promptly repair equipment that has failed. The coefficient can be reduced by developing new markets.
The use of technological innovations and devices with increased production capacity also makes it possible to increase the efficiency of the company. One of the important factors influencing the final cost of products is the quality of the product. Increasing this parameter, together with the competitive properties of the products, can significantly increase the income of the enterprise.
Capital productivity, capital intensity, capital-labor ratio are key categories used in the economic analysis of a company's activities. These elements reflect different processes, but are closely interconnected. To conduct a complete economic analysis, it is necessary to determine the capital productivity and capital intensity of products over time. Let us consider these categories in more detail below.
General information
What is capital productivity, capital intensity, capital-labor ratio? The first element acts as a general parameter for the use of company assets. Capital productivity and capital intensity of an enterprise are reciprocal quantities. The second characterizes the number of assets per ruble of goods produced. The capital-labor ratio shows the degree to which the company's workers are equipped to operate. This category is of particular importance in the analysis. The capital productivity, capital intensity, and capital profitability of the company depend on its value.
Factors of influence
Capital productivity and capital intensity of fixed assets, as mentioned above, depend on the degree of equipment of the company. The first category is defined as the ratio of the output of finished products to the average annual value of assets. This value is used when analyzing the level of OS use, planning justification for the increase in attracted capacities and production volumes. Among the factors influencing this value, it should be noted:
- Share of the active part of the OS.
- Age composition, structure and improvement of the technological equipment fleet.
- Time of operation, including intensive use, of machines, etc.
At the state level, capital productivity and capital intensity are calculated based on the volume of national income. In industry, the basic quantities are the net, gross and marketable quantities of products produced. Indicators of capital productivity and capital intensity are determined in comparable prices. This allows you to determine the physical volume of manufactured products and assets and accurately analyze the dynamics.
Industry factor
The capital productivity/capital intensity of products of one economic, industrial or transport sector differ significantly from the values determined for another. In this regard, when analyzing dynamics by industry, region, or country, the corresponding changes in the structure of goods and assets are taken into account. The dynamics are influenced by:
- Volume of production of products in physical terms and their price.
- Structure and composition of the OS (specific gravity, age characteristics of the active part).
- Price, productivity and other characteristics of equipment and machines, their degree of wear.
- Proportion of unused assets, load level, capacity and area operating factors.
Other circumstances
If the company operates efficiently, the capital productivity will increase. In addition to the cost of fixed assets and depreciation, it may be affected by:
- Changing the structure of equipment and overhauling its key elements.
- Planned modernization.
- Changing the ratio of OS for non-production and production purposes.
- Adjustment of capacity utilization due to additions to the product range.
- Changes in the volume of output due to the impact of market conditions and other circumstances on the process.
As can be seen from the above list, many factors are outside of production. But since capital productivity is characterized by high variability, these circumstances directly affect its value. For example, a company has a high level of asset depreciation. This may mean that the introduction of new information systems may have a negative impact on capital productivity indicators. This, in turn, is fraught with drawing incorrect conclusions based on calculations. However, the potential for capital productivity should not be underestimated. After all, with its help, the company is able to independently compare its capabilities with the advantages of competing companies. To do this, the enterprise will only need open statistical data or information on the financial statements of other business entities published in official sources.
Exceptions
It should be remembered that the calculation of the capital productivity indicator does not take into account a number of changes:
- Downtime of equipment and machinery.
- OS structures for production purposes.
- Efficiency of equipment operation.
- Parts of active operating systems for production purposes.
Capital productivity and capital intensity: formulas
The calculation is carried out using two values: the average annual (full) cost of fixed assets and the volume of manufactured products for the same period.
- FO = product release / avg. annual st-st.
- FE = avg. annual production / release of goods.
Thus, it is clear that capital productivity and capital intensity are reciprocal quantities. To calculate the level of equipment of a company, the average annual cost of fixed assets is also used. The second quantity is the number of employees:
- FV = avg. annual headcount / average number of employees.
The degree of equipment of the company and capital productivity are connected through the amount of labor productivity. It represents the ratio of product output to the average number of employees. It follows that:
- FO = productivity / capital-labor ratio.
Determination of capital productivity can be done as follows:
- FO = release of goods / initial level of fixed assets.
The initial price of assets is determined for manufactured products in relation to the funds invested in it. In addition, the calculation can be done as follows:
Improving OS efficiency
Today, enterprises pay quite a lot of attention to the issue of selling goods. In a fairly fierce competition, pricing occupies a key position in the process of generating demand. But constantly restraining prices and providing discounts to customers is extremely unprofitable. This could lead to a crisis because the income generated will not cover expenses. As a result, the company will become insolvent. A way out of the situation may be to reduce costs. According to many experts and managers of industrial enterprises, it is possible to reduce costs by reducing semi-fixed costs and constantly increasing output volume. The last task, as a rule, is solved by attracting new equipment (by leasing or credit) and only to a small extent by identifying and using internal reserves.
Undoubtedly, the attraction of new equipment will help increase output. But the expected economic effect will be received by those companies that increase their capacity to meet the increased demand for goods. It would be advisable for other enterprises to search for internal reserves and develop a program for their rational use.
OS turnover efficiency
Capital productivity and capital intensity must be balanced. The profitability of the business will depend on how efficiently the company's resources are used. Currently, there is a not very favorable trend. Many enterprises have observed a decrease in the efficiency of OS turnover. The actual level is assessed over several years. However, if capital productivity and capital intensity are planned, then a comparison is made with the planned values. One of the factors influencing the decline in the efficiency of assets is their slow development. At the same time, reducing the time it takes to put resources into operation can speed up their turnover. This, in turn, will slow down the onset of obsolescence of the company's assets and increase the effectiveness of its economic activities.
Comprehensive analysis
To implement it, it is necessary to consider the company’s activities from different angles. That is why in economic analysis, capital productivity and capital intensity are taken into account primarily. The formulas given above are used to assess the efficiency of asset turnover and the amount of resources that need to be spent on their acquisition. Based on the results of the analysis, a set of measures is being developed aimed at increasing the profitability of asset turnover. Among them, in particular, may be provided:
- Increasing the share of equipment.
- Replacement of outdated models with new ones.
- Increasing production efficiency by increasing productivity, eliminating auxiliary unnecessary fixed assets.
- Selling a piece of equipment that is not used or is used extremely rarely.
- Transition to the production of products with higher added value.
- Increasing the number of shifts, eliminating downtime. This will lead to an increase in the coefficient of computer time use.
Evaluation results
Capital productivity and capital intensity of fixed assets are calculated using values that reflect the volume of products already produced and the value of assets involved in the process. The efficiency of resources depends on the company's net profit. Its value is compared with depreciation amounts. Based on the result, capital intensity/capital productivity is assessed. The company's profitability will be recognized if depreciation charges are less than net profit.
Important point
Many managers do not clearly understand the need to determine return on capital. However, in practice, its value helps to make various management decisions. For example, knowing the capital productivity indicator, an entrepreneur purchases this or that equipment. If the subsequent profit is higher than the acquisition costs, then the investment can be considered effective. In this regard, we can say that the value of capital productivity serves as a means of insurance and planning for any enterprise.
Dynamics
The level of changes in the indicators under consideration will depend, as noted above, on the degree of equipment of the company. During the intensive re-equipment of labor with modern means, a decrease in capital productivity is observed. But subsequently, in the process of mastering new tools, its value stabilizes. Moreover, the prerequisites for increasing the value are being formed. At each stage there is a limit to the growth of the capital-labor ratio, beyond which there is a decrease in capital productivity. One of the necessary conditions is a rapid increase in labor efficiency in comparison with an increase in the degree of equipment. Enterprises must take measures aimed at increasing capital productivity. For example, for construction and installation companies, an urgent solution to the problem may be to increase shifts, increase workload, improve the organization of work and the technological process itself, modernize equipment taking into account the nature of the activity, and so on. Using the absolute difference method, you can determine the influence of factors related to asset turnover:
- Extensive (quantitative) - the amount of fixed assets.
- Intensive (high-quality) - capital productivity.
Conclusion
Rational use of the fixed assets available at the enterprise makes it possible to increase the volume of public goods and the level of national income. Increasing the efficiency of operating the company's own resources eliminates the need to attract additional capital investments. At the same time, an increase in output volume is achieved in the shortest possible time. Proper use of fixed assets, maintaining capital intensity at an optimal level ensures maximum capital productivity, speeds up the production process, reduces costs and reduces the cost of reproducing new assets. The economic effect of increasing the efficiency of asset turnover is an increase in social productivity.
Capital productivity reflects the amount of goods (or the amount of income) that a company receives from each ruble of fixed assets at its disposal. The efficiency of asset turnover is assessed by its value. Capital intensity reflects the amount of funds that need to be invested in fixed assets to obtain the required volume of output. As asset utilization improves, FI increases and FE decreases. If capital intensity decreases, it means that labor savings are taking place. During the assessment process, working equipment and machines are separated from the operating system. Comparison of the percentage of plan execution and growth rates per ruble of the value of the active part of funds and per 1 ruble. The st-sti of technological resources shows the impact of changes in the structure of production assets on the effectiveness of their operation. The second value under these conditions should be higher than the first (if the share of the OS working group increases).
The role of economic efficiency analysis fixed assets for the successful functioning of the entire enterprise cannot be overestimated. In this case, three main indicators are usually used - capital productivity, capital intensity and capital-labor ratio. As a rule, their change in dynamics is considered.
Based on the results of the study, conclusions are drawn about the rationality or irrationality of using available funds, errors and problems are revealed, and reserves for increasing the efficiency of using fixed assets are discovered.
Average annual cost of fixed assets
To calculate indicators of capital intensity, capital productivity and capital-labor ratio, the value is used "average annual cost of fixed assets". The formula for determining this indicator is as follows:
OS environment = OS ng + OS input * N1 / 12 - OS select * N2 / 12
- OS ng- cost of fixed assets at the beginning of the year,
- OS input- cost of fixed assets put into operation during the year,
- OS selected- the cost of fixed assets disposed of during the year,
- N1- number of months of use of introduced fixed assets,
- N2- the number of months during which the retired fixed assets were not used.
The value of fixed assets at the beginning of the year can be taken from the balance sheet. To determine the cost of fixed assets put into operation, you need to familiarize yourself with the debit turnover in account 01 “fixed assets” (the source of information can be the balance sheet for this account). To calculate the value of funds written off from the balance sheet, it is enough to look at the credit turnover on the same account.
Capital productivity
The capital productivity indicator is calculated as follows:
Capital productivity = Volume of total output / Average annual cost of fixed assets
Capital productivity shows how much finished product falls on 1 ruble of fixed assets. That is, the higher the value of capital productivity, the more efficiently the enterprise uses its fixed assets. Accordingly, an increase in the indicator over time is assessed positively.
If the opposite situation occurs, this is a serious reason to think about the reasons for the irrational use of existing equipment. After all, over time, problems can lead to significant losses for the enterprise itself.
Capital intensity
The capital intensity indicator is the inverse of the capital productivity indicator and is calculated using the formula:
Capital intensity = Average annual cost of fixed assets / Volume of output.
The value of capital intensity shows how much fixed assets falls on each ruble of finished products. Naturally, the lower this indicator, the more efficiently the enterprise’s equipment is used. A decrease in the indicator over time is a positive trend in the development of the enterprise.
Capital intensity (FE) and capital productivity (CR) are paired and interrelated indicators. If one quantity is known, another can be found by subtracting the known exponent from one.
If there is a situation at an enterprise in which the FE increases and the FE falls, this means that production capacities are being used irrationally and their workload is not full enough. Accordingly, you should start looking for additional reserves as soon as possible.
For example, it may be worth increasing the number of shifts or making the work week six days (which does not mean that each individual employee will work 6 days a week, we are only talking about the redistribution of labor resources).
Capital-labor ratio
The capital-labor ratio reflects employee security enterprise fixed assets and is calculated using the following formula:
Capital-labor ratio = Average annual cost of fixed assets / Average number of employees.
It is possible to draw conclusions about changes in this indicator only if it is linked to the value of labor productivity. If the growth rate of labor productivity lags behind the growth rate of the capital-labor ratio, this indicates an irrational use of the enterprise's resources. Perhaps we are talking about the large number of the organization’s management apparatus or the unmotivated growth of the passive part of fixed assets.
Analysis of these three simple indicators will allow you to promptly recognize problems that threaten the profitability of the enterprise and find ways to eliminate them.