The capital intensity is the formula of the economic analysis tool

When organizing the work of an enterprise in the sphere of production, its leadership necessarily encounters such concepts as capital ratio, formula of capital intensity, etc. Without the effective use of funds, stock indicators, the stability of the production process is almost impossible.

Calculation algorithms

So, we know that the capital intensity (the calculation formula) shows how much of the main production funds are accounted for by one monetary unit (for example, the ruble) of the products produced. Here, it is the main production assets that are important , and not all that the enterprise possesses. The depreciation of funds in this case is not taken into account. As well as not taken into account and sold products.

The capital ratio is a formula that calculates the balance sheet for a time period (quarter, half year, etc.) and information about the losses and profits of the enterprise for the same period. First, the average cost of fixed assets , for example, spent per year, is calculated. For this purpose, the cost of these funds is taken at the beginning of the year and at the end. The sum is added and divided into two. When the planned capital ratio is calculated, the formula for its calculation is filled with figures that are planned in the business plan of the enterprise. Then the cost of the products that the enterprise produced for the year is revealed. In this case, information on the revenue received by the production for the year of operation is taken. Such data can be obtained by studying the accounting statements of profit and loss for the period.

Only after the necessary figures have been collected, the economist undertakes to calculate the capital intensity of fixed assets in production for the period of interest. The capital intensity (formula) is filled with data on what is the average cost of fixed assets for a certain year, for example, current or past, and this figure is divided by the value of all products released during the same period. The figures obtained at the output will give a real idea of the capital intensity of fixed assets in the enterprise.

If the planned capital ratio is of interest, its formula must contain data from the business plan, and then the calculations are carried out according to the already known scheme.

It becomes clear that the capital intensity is inherently an indicator of how much of the material assets it needs to invest in its production assets to produce products worth 1 dollar, ruble, euro or any other currency. Due to such calculations it is possible to differentiate the branches of production, types of business in terms of the amount of necessary investment in assets not participating in the main turnover.

Application

In the economy, the indicators of capital intensity are needed as auxiliary tools for economic analysis. Each manufacturing industry, as well as the type of production, has its own specific fund-raising coefficients. Therefore, figures and figures are compared between similar, close or similar industries and the same types of products.

Another sphere of application of indicators of capital intensity is planned calculations, an estimation of the volume of additional necessary capital investments. But these indicators depend on how effectively the work process is organized at the enterprise. For example, in winter the canning factory for processing vegetables and fruits works in one shift. With the onset of the summer-autumn season, during the period of mass ripening of fruit and vegetable products, the burden on the enterprise increases, it begins to function in two or even three shifts. Naturally, the use of fixed assets of equipment increases, it becomes more efficient, and the indicators of capital intensity decrease. Optimization of production processes, elimination of a deficit and a problem situation in any single link in this process can also lead to a significant economic effect for the entire enterprise.