In this article we will look at the capital intensity ratio. We will find out what affects the coefficient and analyze the calculation of the return on assets. Let's talk about calculation errors.
Often, for a business plan, it is necessary to calculate such a coefficient as the “capital ratio”. This article will highlight this issue in detail, which will allow the entrepreneur to make the most accurate calculations of the required production costs.
What is included in the concept of the capital ratio?
Capital intensity is a financial indicator that reflects the efficiency of the use of fixed assets by an enterprise. This indicator is the cost of fixed assets per unit of output.
The existence of an enterprise is impossible without fixed assets - thanks to them, the enterprise has the ability to produce and sell products. Fixed assets include:
- building;
- production equipment;
- vehicles, etc.
Thanks to the value of this indicator, the manager decides whether it is advisable to increase production capacity.
This indicator is not effective in all industries. The expediency of using the capital ratio is appropriate in those areas where the production process does not fully depend on intellectual investments:
- logging production;
- capital construction;
- extractive industry, etc.
Factors affecting the capital ratio
The capital ratio of the enterprise is influenced by:
- the workload of production facilities;
- average annual cost of fixed assets;
- the volume of products manufactured by the enterprise.
Capital intensity ratio: calculation formula
To calculate the capital ratio, accounting and accounting documentation containing the volumes of products manufactured by the enterprise are used.
The coefficient is calculated according to the formula:
| Capital intensity ratio | = | 1 | / | Return on assets | = | Fixed asset value | / | Production volume |
But in practice, the average annual indicators reflected in the financial statements are often used. To calculate the capital ratio, the following criteria must be taken into account:
- fixed assets as of January 1 of the accounting year;
- fixed assets as of December 31 of the accounting year;
- revenue received by the company in the accounting year.
The calculation is made according to the following formula:
Calculation of the balance sheet ratio
To calculate the capital ratio, it is very convenient to use balance sheet... To carry out the calculation, you must take the following indicators:
- line 1150 at the beginning of the year (Appendix No. 1 to the Order of the Ministry of Finance of the Russian Federation dated 02.07.2010 No. 66n);
- line 1150 at the end of the year (Appendix No. 1 to the Order of the Ministry of Finance of the Russian Federation dated 02.07.2010 No. 66n);
- line 2110 (Appendix No. 2 to the Order of the Ministry of Finance of the Russian Federation dated 02.07.2010 No. 66n).
The calculation will be made according to the following formula:
For example:
LLC "ABV", which performs logging operations, has the following indicators in the accounting report:
- line 1150 at the beginning of the year - 3,560,380 rubles;
- line 1150 at the end of the year - 4 180 360 rubles;
- line 2110 - 13,200,000 rubles.
The capital ratio will be:
3560380 + 4180360 * 0,5 / 1320000 = 0,29.
How to interpret the value of the capital ratio?
It is necessary to understand that the higher the capital ratio, the less efficiently the production capacity is used. V in this case the manager needs to look for opportunities for the rational use of equipment in order to optimize the production process.
What does the analysis of the capital intensity ratio show?
The capital ratio of an enterprise cannot be analyzed by obtaining the volume of the indicator for 1 year - for a qualitative analysis, results of several years are required. As a result of the work done, you can see a rather interesting picture:
| The value of the capital ratio | A comment |
| The capital ratio is increasing | This trend suggests that production efficiency is decreasing. This means that some fixed assets are not fully involved in the production process. As a rule, this can be idle equipment, unused production areas, etc. |
| The capital ratio is decreasing | This trend suggests that production efficiency is increasing, i.e. fixed assets fully fulfill their purpose in the production of products. |
| The capital ratio of the enterprise exceeds the average size capital ratio by industry | In this case, we can talk about a decrease in the efficiency of using production capacities by a specific enterprise in comparison with competing enterprises, which form the industry average indicator. |
| The ratio of the capital ratio of the enterprise is below the average size of the ratio of the capital ratio in the industry | In this case, the capital ratio indicates the high efficiency of the use of the means of production by the given enterprise in comparison with competitors. This indicator allows us to consider the company as a competitive player in the production market. |
For example:
LLC "ABV", which performs logging operations, has the following indicators:
| Indicators | 2015 year | 2016 year | Changes |
| Fixed assets | 3165740 | 4184540 | +1017000 |
| Revenue | 10160000 | 12580000 | +2420000 |
| Capital ratio | 0,31 | 0,33 | +0,02 |
Based on the obtained indicators, it can be argued that, despite the problems in the rational use of production facilities, in the context of the industry average, ABV LLC can be considered as a serious competitor.
How is the analysis of the capital intensity of industries useful?
The capital ratio allows us to assess the rationality of the use of production capacities both of the enterprise itself as an introspection, and comparative analysis enterprises in the context of the manufacturing industry as a whole.
In the case of calculating the sectoral capital ratio, the following are taken as the basis:
- production funds;
- gross product.
It is customary to consider two types of capital intensity:
| Capital capacity type |
Role economic analysis efficiency of use fixed assets it is impossible to overestimate for the successful functioning of the entire enterprise. 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 the use of available funds, errors and problems are revealed, reserves for increasing the efficiency of the use of fixed assets are revealed.
Average annual cost of fixed assets
To calculate the 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:
ОC medium = ОC ng + ОC int * N1 / 12 - ОC select * N2 / 12
- OC ng- the cost of fixed assets at the beginning of the year,
- OS entered- the cost of fixed assets put into operation during the year,
- OS select- the cost of fixed assets retired during the year,
- N1- the number of months of use of the entered fixed assets,
- N2- the number of months during which the retired fixed assets were not used.
The cost of fixed assets at the beginning of the year can be taken from the balance sheet. To determine the value of the fixed assets put into operation, you need to familiarize yourself with the debit turnover on account 01 "fixed assets" (the balance sheet for this account can serve as a source of information). To calculate the value of funds written off from the balance sheet, it is enough to look at the credit turnovers for the same account.
Return on assets
The return on assets ratio is calculated as follows:
Return on assets = Volume of all products / Average annual cost fixed assets
The return on assets shows how much of the finished product falls on 1 ruble of fixed assets. That is, the higher the value of return on assets, the more efficiently the enterprise uses its fixed assets. Accordingly, the increase in the indicator in dynamics is assessed positively.
If the opposite situation takes place, this is a serious reason to think about the reasons for the irrational use of existing equipment. Indeed, over time, problems can lead the company itself to significant losses.
Capital intensity
The capital intensity indicator is the inverse of the capital productivity indicator and is calculated by the formula:
Capital intensity = Average annual value of fixed assets / Volume of products produced.
The value of capital intensity shows what amount of fixed assets falls on each ruble of finished goods. Naturally, the lower this indicator, the more efficiently the enterprise equipment is used. A decrease in the indicator over time is a positive trend in the development of the enterprise.
Capital intensity (PU) and capital productivity (FO) are paired, interrelated indicators. If one quantity is known, the other can be found by subtracting the known indicator from one.
If the enterprise has a situation in which the PU increases, and the FD falls, this means that production capacities are used irrationally, their workload is not full enough. Accordingly, the search for additional reserves should be started 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 worker will work 6 days a week, this is only a redistribution labor resources).
Capital-labor ratio
The capital-labor ratio reflects provision of employees enterprises with fixed assets and is calculated using the following formula:
Capital-to-labor ratio = Average annual cost of fixed assets / Average number of employees.
It is possible to draw conclusions about the change in this indicator only in relation to the value of labor productivity. If the growth rate of labor productivity lags behind the growth rate of capital-labor ratio, this indicates the irrational use of the enterprise's resources. Perhaps we are talking about the multiplicity of the management apparatus of the organization or the unmotivated growth of the passive part of fixed assets.
The analysis of these three simple indicators will allow you to recognize in time the problems that threaten the profitability of the enterprise, and find ways to eliminate them.
In the article we will analyze such an economic coefficient as capital intensity, as well as the formula for calculating the indicator for a business plan.
Capital intensity
Capital intensity- a financial indicator that shows the efficiency of management of fixed assets and shows the amount of fixed assets per unit of manufactured (sold) products. Fixed assets of production include: buildings, structures, equipment, machinery, transport, production equipment, i.e. what provides the production process of the enterprise. This indicator is actively used in countries with a socialist economy to substantiate production plans in the context of the entire country.
The formula for calculating the ratio of capital intensity
The capital intensity ratio is inversely proportional to the return on assets and the calculation formula is as follows:
To calculate this ratio, both accounting and production reports are used, showing the volume of products produced.
In practice, a modification of the capital intensity ratio is used, where the average annual value of fixed assets, as well as the proceeds from the sale of manufactured products, are used. This indicator is calculated only for the balance sheet, and the formula is as follows:
This formula of capital intensity reflects the degree of payback of fixed assets.
Analysis of the capital intensity ratio. Standard
This coefficient does not have a generally accepted normative value and is analyzed in dynamics over several years. The table below shows the analysis of the capital intensity of the enterprise in dynamics.
|
Indicator value |
Analysis of the dynamics of the coefficient |
|
To fund.e ↗ |
An increase in the capital ratio shows a decrease in the efficiency of production. |
|
To fund.e ↘ |
A decrease in the capital intensity ratio shows an increase in the efficiency of using production equipment and capacities in the production of products. |
|
K fond.e> K * fond.e |
The excess of the level of capital intensity over the industry average value (*) shows a decrease in the efficiency of production in relation to similar companies in the industry. |
|
To fund e< К * фонд.е |
A decrease in the level of capital intensity in relation to the industry average value (*) shows an increase in the efficiency of using fixed production assets. |
Capital intensity of industries
The capital intensity ratio characterizes the level of optimization of the entire production process and is used in assessing the efficiency of both enterprises and industries. The capital intensity of the industry shows the ratio of production assets to gross marketable output.
One of the important indicators of the efficiency of using fixed assets of an enterprise (industry) is the capital intensity ( TO fond f). Conducting a plan-actual analysis of this value for the selected period will allow us to assess how efficiently fixed capital is used.
Capital intensity is a financial and economic coefficient that characterizes the rationality of using the introduced production assets of an enterprise (intangible objects that ensure the manufacture of goods). It reflects property, plant and equipment in value terms, which are attributable to one ruble of goods issued.
When determining the coefficient for the industry, its value shows the value of the 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 efficiency use of OPF directly involved in the production of products;
2. Complete, on the basis of which the effectiveness of the operation is determined not only of the OPF, but also of the means that are indirectly related to the production process.
The considered coefficient has no standards, and it is recommended to consider it in dynamics over several years in order to determine the optimal level for the organization. An increase in the indicator reflects a decrease in the return on production equipment. And its decrease in comparison with the previous period shows that the enterprise has become more efficient in using production capacities, and is increasing its turnover.
That is, the smaller the value obtained, the better for the company. Comparing the value of the coefficient with the industry average, it is determined to what extent the result of the organization's activities lags behind or is ahead of other enterprises.
Capital intensity is the opposite. Thus, if the dynamics of its increase is visible, one should rationally approach the organization of the production process, look for ways to optimize it.
Factors affecting capital intensity
Such factors as have a significant influence on the coefficient:
1. Issue volume and sales volume;
2. Qualitative and structural characteristics of fixed assets, their parameters (introduction of new equipment, duration and number of downtime, forced costs for ergonomics and safety precautions, number of equipment shifts);
3. Wear level of OPF;
4. 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. Renovation of production facilities in order to maintain their optimal condition;
2. Introduction of new high-tech equipment with increased capacities;
3. Improving the quality characteristics and competitive properties of products in order to increase revenue. Studying and entering new sales markets.
(Fw) reflects the extent to which employees are provided with fixed assets.
In other words, FV determines the value of fixed assets per employee. For an objective assessment, a comparison is made of the growth rates of capital-labor ratio and labor productivity (PT). The lag in the growth rate of PT reflects the ineffective use of organizational resources and indicates the need for measures to improve the situation.
Having analyzed in aggregate the values of three indicators - capital intensity, capital productivity and capital-labor ratio - the 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 the production fund by the volume of manufactured (sold) products or as a coefficient inversely proportional to the return on assets:
In practice, the value is calculated by accounting statements organizations using forms No. 1 (balance sheet) and No. 2 (statement of financial results):
or TO fund.e = (line 1150n + line 1150k) * 0.5 / line 2110
Analysis pitfalls
With the introduction of advanced types of equipment and technologies that contribute to the conservation of enterprise resources, the growth rate of capital-labor ratio can outstrip the growth rate of labor productivity. Thus, this leads to an increase in capital intensity (decrease in capital productivity). A decrease in the degree of use of OPF 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 profitable, since there is an increase in other indicators of the state of the enterprise and there is an economy of material and labor assets, which compensates for the losses. Outpacing the growth rate of net profit over the growth rate of the Kfond. e 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. Assessment of the state of the enterprise on the basis of one calculated value is not sufficiently objective. The analysis of the economic situation of the company is carried out on the basis of a group of indicators in aggregate, and on this basis an objective conclusion is made.
Based on the information above, it can be summarized.
Capital intensity- an important indicator financial condition company, which is more correct to calculate based on the financial statements. It is better to analyze the obtained result in conjunction with other coefficients (capital-labor ratio, capital productivity, labor productivity, and others) to obtain a clearer picture of the state of affairs of the company.
Definition: Return on assets - this is the value of the products produced per 1 ruble. the cost of the basic production assets of the enterprise.
This indicator is used to determine the efficiency of using the entire set of fixed assets of an enterprise.
cost of OPF;
FD- return on assets;
VP- output.
|
Base year |
Reporting year |
|
|
|
Definition
Capital intensity - …………… ..
FE- capital intensity;
FD- return on assets;
|
Base year |
Reporting year |
|
|
|
Definition
Capital-to-labor ratio - …………………………
the average annual cost of fixed assets;
PV- capital-labor ratio;
H Wed- the average number of workers
It can be concluded that the rate of return on assets in the reporting year is greater than in the base year because OPF and VP in the reporting year are more.
The capital intensity indicator, respectively, in the reporting year is less than in the base year. the rate of return on assets is greater.
The capital-labor ratio in the reporting year is almost 2 times more than in the base year. and the number of workers is smaller and the average annual value is higher in the reporting year.
2. Calculation of labor productivity
Definition: Labor productivity – …………………………………..
NS R- labor productivity;
VP - output;
H Wed- the average number of employees of the enterprise.
Conclusion: Labor productivity in the reporting year is higher by 6.96 thousand rubles / person. since more products were manufactured in the reporting year and the number of employees at the enterprise is less than in the base year.
3. Calculation of indicators of the use of working capital
Definition: Turnover ratio –
TO about
VP- output;
OS- remainder working capital.
|
Base year |
Reporting year |
|
|
|
Definition: Average turnover period – ….
D- average turnover period;
T- the number of days in a year;
TO about- turnover ratio.
|
Base year |
Reporting year |
|
|
|
(days)
(days)Definition: Working capital utilization ratio –……..
…………………………………………………………………………………………
TO about- turnover ratio;
TO s- coefficient of working capital utilization.
|
Base year |
Reporting year |
|
|
|
Conclusion: When determining the load factor of working capital, it can be seen that in the base year it is higher, because the turnover rate is less.
4. Calculation of the cost of production and its share in the cost of products sold
Definition: Production cost –…………………..
----
NS- profit from product sales;
V- proceeds from the sale of products;
WITH- production cost.
|
Base year |
Reporting year |
|
С = 225-55 = 170 (thousand rubles) |
С = 275-75 = 200 (thousand rubles) |
specific weight- the share of the cost of goods sold;
WITH- production cost;
VP- output.
|
Base year |
Reporting year |
|
|
|
When determining the cost price and specific weight, it can be seen that the cost price in the base year is less by 30 thousand rubles, and the specific weight of the cost of sold products is more by about 3%.