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 the enterprise itself to significant losses.
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.
Turnover ratios are the basis for analyzing the benefits that an investor receives by investing material resources in various investment projects. One of the most important economic indicators can be considered capital productivity, which gives an adequate assessment of the work of an enterprise in the economic sphere of activity.
When analyzing turnover, an entrepreneur must remember that capital productivity implies the ratio of the means of labor that the company owns and the revenue that was received from the sale of a certain volume of products. That is, this coefficient is not a direct characteristic of the efficiency of using the funds available to the enterprise. However, monitoring the dynamics of the capital productivity indicator over the past few years will give an idea of the efficiency of production assets. So, what is capital productivity?
Total Asset Turnover Ratio - an economic indicator called fund turnover, calculated using the following formula:
RTAT=Revenue/Average Stock Value
The results of calculations using the above formula show how much goods the organization produces per each unit of labor. In most cases, the ratio becomes the main indicator indicating the level of quality of use of funds. It is necessary to calculate the indicator in order to compare the efficiency with which production assets are used by different companies. Return on assets indicates the ability of managers to ensure the efficient use of assets. The lower the indicator indicates inappropriate management of production assets.
Sometimes comparison of capital productivity ratios for a certain reporting period may give incorrect results. Similar difficulties occur:
- when the policies of the companies being analyzed have significant differences;
- when there are suspicions related to overestimation of the proceeds received from the sale of goods;
- when the degree of depreciation of the analyzed funds varies significantly;
- when prices rise due to inflation.
Capital productivity analysis
The capital productivity ratio makes it possible to draw adequate conclusions after conducting an internal analysis of the organization’s work. If, as a result of the analysis, a low coefficient was obtained, we can talk about insufficiently high production volumes for the established value of funds.
To solve the problem, the manager needs to take a set of measures to increase the volume of products prepared for sale. If this possibility does not exist, an analysis of the assets that will need to be written off in the future should be carried out.
If the capital productivity indicator is high, the manager needs to think about finding investors whose investments will allow expanding production.
There are several groups of assets that stand out among turnover indicators, for example, accounts receivable or inventory. Such indicators are most often calculated by dividing revenue by the type of liabilities or assets that are analyzed.
A clear example will help you understand. In 2008, the amount received by OJSC Norilsk Nickel was 14,000 million rubles, while the amount of funds was 28,300 million. To calculate capital productivity , you need to divide 14,000 by 28,300. The indicator will be equal to 0.49. This means that during the reporting period, the analysis of which was carried out, for one ruble of the company’s funds there were forty-nine kopecks of revenue, that is, for the analyzed year the funds were able to pay off only forty-nine percent.
If we consider the period from 2005 to 2008, we can notice the negative dynamics of asset turnover; there is a decline. The results of the analysis may indicate an ineffective policy regarding the use of funds owned by the company. This is due primarily to the fact that revenue has increased by only forty-four percent since two thousand and seven, while the amount of funds has increased by one hundred and nineteen percent.
However, it is sometimes difficult to avoid such jumps, since assets are increased in batches, and the revenue received grows steadily. Negative dynamics should not persist for a long time, otherwise company managers should reconsider their sales policy. Sometimes, in order to attract new investors, you need to eliminate all sorts of unnecessary assets.
Optimal indicator
There is no standard when it comes to capital productivity indicators. The optimal indicator in most cases depends on the characteristics of the organization, as well as the industry in which it operates. If we talk about the asset turnover indicator for capital-intensive production, it should be noted that its value will be lower, since in this case the main part of the fund is fixed assets. We can talk about effectively increasing efficiency only when the capital productivity indicator grows dynamically.
To increase fund turnover, modern managers can:
- increase the level of revenue while leaving the composition of funds the same. To do this, it is necessary to take a set of measures that will improve the efficiency of asset use. Increasing the operating time of the equipment used can also be effective;
- change the composition of funds by writing off usable and unnecessary assets. The final write-off amount will help reduce the denominator used in the formula for calculating capital productivity.
Any manufacturing enterprise that is engaged in certain economic activities needs periodic assessment of the effectiveness of its financial and economic condition. How positive the future of the company will be depends on this.
Of course, risking the stability of an enterprise's development is an unacceptable luxury. For this reason, in any organization that uses production resources, a qualitative analysis of the speed and degree of return on investment is carried out on an ongoing basis.
What is capital productivity of fixed assets
This indicator is one of the main ones in the process of assessing the economic activity of an enterprise. Regarding this topic, it is initially worth paying attention to fixed assets, which can also be called funds. Essentially, they can be defined as non-current assets or resources that are invested in the acquisition of fixed assets.
The return of such funds does not occur immediately; this will require several completed production cycles. From which a simple conclusion follows: the more efficient the use of the resources received, the faster the return on the invested funds. Therefore, the analysis of capital productivity of fixed assets is relevant and cannot be ignored.
Credit institutions, investors and owners can take part directly in the process of assessing the activities of an enterprise. In this case, all indicators that can characterize the state of fixed assets are taken into account.
We are talking about capital-labor ratio, capital productivity, as well as profitability and capacity of fixed assets.
Why is this indicator important?
Initially, it is worth understanding that capital productivity of fixed assets is one of the most effective ways to assess the rate of return of funds invested by investors. It was this criterion that was defined as the main proof of the successful operation of an enterprise back in Soviet times. This approach is not difficult to explain: this indicator allows you to find out how much finished products are produced for each unit of cost of the PF, which are subsequently sold. But the influx of financial resources and the return of invested resources depend on the level of sales.
In order to evaluate this indicator, as a rule, the following principle is used: the cost of fixed assets is compared with the volume of goods that have already been produced by the enterprise.
Capital productivity indicator of fixed assets
If we talk about identifying the return ratio of funds, then we should focus on the key formula, which can be defined as universal. Its indicators may vary depending on the purposes for which the indicator is calculated.
In order to obtain an extremely objective analysis result, it is necessary to use the same units of measurement during the calculation process. This means that they should not change between different comparable periods. The ratio itself is aimed at determining the degree of turnover of non-current assets. It is calculated as the ratio of the company's sold (produced) products to the cost of fixed assets.
When the coefficient is determined, the company's management can see how many goods were sold per unit of funds invested in the PF. As you can see, determining the capital productivity of fixed assets is not so difficult. The main thing is to take into account all current data during the calculation process.
When identifying the rate of resource renewal, the essence of the calculation does not change. A similar scheme is used when working with such indicators as accounts receivable, inventories, intermediaries and any types of assets that are involved in the production process.
Formula
The scheme itself, by means of which the capital productivity of fixed production assets is calculated, is as follows: Fo = Vpr / Sof.
In this case, Fo is the total capital productivity, Vpr is the products produced during a certain period, Sof is the cost of fixed assets related to production. Such a formula can be successfully used to obtain a generalized indicator that will need to be calculated for production departments, and for all. If this condition is not met, then it is necessary to specify the elements of the denominator and numerator.
How can you adjust the denominator?
When using the formula for calculating capital productivity, you need to take into account the fact that the denominator indicates the cost of fixed assets. In order for the indicator to ultimately be correct, you must adhere to the following rule: the denominator and numerator must reflect the real data that is used for the calculation.
To determine the cost of fixed assets, the following formula is used: OSsr = OSsn + OSk/2.
This means that the book value of the OPF recorded at the beginning of the period must be summed up with the data that was received at the end of the period. Next, the value that was obtained as a result of such calculations is divided by 2. This is necessary to obtain the arithmetic average.
This indicator changes if funds have been revalued. To take into account the structure of fixed production assets, you need to take into account only the active assets of the enterprise (those that participate in the production process). These can be machines, machines, equipment and other resources.
How to correctly analyze an indicator
After the coefficient of such an indicator as the capital productivity of the active part of fixed assets has been obtained, it is necessary to compare this result with similar data that were recorded in other periods. If in the process of such analytics you pay attention to the dynamics of values, you can determine a decrease or increase in the degree of efficiency in the use of fixed production assets.
If the dynamics are positive, it makes sense to talk about the right approach to operating the OPF. The result of such tactics will be an increase in product output and sales levels.
What affects capital productivity
The level of turnover of the general fund can be influenced by various factors that should be paid attention to:
- productivity of the main part of the equipment used to produce goods;
- the volume of products that were sold within a specific period;
- structure of fixed assets;
- level of workload on production lines;
- reducing the number of shortened work shifts, downtime of machines and equipment;
- increasing the level of labor productivity and non-current assets;
- technological level of the manufacturing sector.
All these factors can significantly change the capital productivity indicator.
How to improve the quality of resource use
For the growth of any enterprise, high efficiency in the use of fixed assets is simply necessary. Capital productivity can be increased if the quality of OS operation increases, taking into account current sales indicators.
There are several ways in which you can accomplish this task:
- First of all, you need to organize several work shifts. This maneuver will significantly reduce equipment downtime.
- The technical level of the personnel is also important - it needs to be increased. This will also affect the reduction of downtime, but due to the competent use of equipment and, as a result, a significant reduction in breakdowns.
- Equipment that has been mothballed must be sold. Obsolete machines or production lines, the level of physical wear and tear of which is high, will have to be written off. As a result, capital productivity of fixed assets will move to a new level of efficiency.
- It is also relevant to allocate funds for the commissioning of equipment with a higher technological level. It is also worth modernizing existing technical resources.
- Considering that such an indicator as capital productivity of fixed assets directly depends on the quantity of products sold, it makes sense to motivate staff by introducing a dependence of the level of wages on the quantity of goods produced.
If you use these methods, you can achieve a stable increase in the rate of return on investment.
Conclusion
Determining the return on fixed assets during the operation of a particular enterprise can be called one of the important methods for analyzing the company’s efficiency. Such calculations must be carried out on an ongoing basis. Otherwise, you may miss the moment when the operation of the enterprise is not effective enough. It is important to understand that each company needs to adjust the calculation formula taking into account the characteristics of its own production and the industry as a whole.
Using such calculations, you can keep your resource management strategy flexible and practical.
They are of great importance for the effective functioning of the enterprise. Improving the quality of their use can solve many problems associated with production. Moreover, they affect both an individual company and the industry and, ultimately, the economy of the entire country. Effective use of fixed assets allows you to increase the volume of output, reduce production costs, increasing And this directly affects the increase in return on capital, profitability and, ultimately, the growth of the standard of living of society as a whole. To achieve these goals, it is important to regularly analyze the degree of utilization by the enterprise using various generalization factors. One of the most important in this case is capital productivity. It shows the level of turnover of fixed assets and allows you to determine how efficiently they are used in production. It is this indicator that we will talk about in the article.
Return on Capital: Definition and Meaning
As already mentioned, this coefficient characterizes the level of use of available capital in an enterprise, industry and the economy as a whole. It is determined on the basis of two values - the issued commodity or the cost of fixed assets of production.
Capital productivity shows the volume of production per unit of fixed assets, and depending on this, the degree of their use or efficiency is determined. Moreover, the value of the goods produced can have both physical and monetary expression (volume or value). And the return on assets indicator itself can be calculated for all funds, and only for part of them.
Calculation of capital productivity: formula
At different levels of the economy, the capital productivity indicator can be calculated. At the same time, he shows the same thing, namely, the efficiency of production in relation to the use of capital, but on different scales. At the enterprise level, to calculate this coefficient, the annual volume of products produced is taken. At the sectoral level, gross or gross output is used, and at the scale of the country's economy, the value of gross domestic product is used.
The capital productivity of fixed assets shows the volume or cost of this product per unit (ruble). The coefficient is calculated using the following formula:
As a rule, the average annual cost of capital is taken, but a number of authors tend to have a different opinion regarding this indicator. Thus, the formula often uses the cost of acquiring these funds (primary) or a value determined in this way:
(funds at the beginning of the period + funds at the end of the period) / 2.
In any case, the meaning of the calculation does not change. Capital productivity shows the ratio of products produced to the funds invested in them.
Capital productivity and capital intensity
The opposite of the indicator we considered is the capital intensity ratio. You could say these are two sides of the coin. What does capital productivity and capital intensity show the owner of an enterprise? If the first speaks about the degree of use of fixed assets, then the second speaks about the need for them. Capital intensity illustrates the amount of fixed assets per ruble of product produced. It is determined by the formula:
1/capital productivity or cost of fixed assets / output.
Having calculated this coefficient, the owner of the enterprise receives information about how much financial resources need to be invested in fixed assets in order to obtain the required volume of production. If capital intensity decreases, this indicates labor savings.
Both indicators characterize the efficiency of using existing capital. If it increases, then capital productivity also increases, and capital intensity, on the contrary, decreases. Is this a good trend? and every enterprise, one way or another, strives for it.
Factors influencing capital productivity
Return on assets shows how successfully the enterprise operates. This is influenced by many different reasons, including those outside the production process. Let's look at what helps increase capital productivity:
- technical re-equipment, modernization and reconstruction;
- better use of capacity and operating time;
- reducing the cost per unit of power at the enterprise;
- change in the structure of funds (increase in the ratio between production and non-production assets);
- better utilization of working capacities;
- market and other factors.
In addition, improvements in product quality should also be taken into account. All other things being constant, it also contributes to more efficient use of capital, increased capital productivity and, consequently, profitability.
Conclusion
To operate effectively, each enterprise must regularly calculate and analyze ratios such as capital intensity and capital productivity. Such an analysis shows a lot, because it allows you to assess the degree to which an enterprise uses its fixed assets and determine the need for them to achieve certain production goals.
The performance of a company is determined by a number of important financial instruments, one of which is the capital productivity indicator.
Return on capital assets: concept and meaning
In essence, capital productivity is a value showing the amount of income per 1 ruble of the cost of fixed assets directly or indirectly involved in the process of producing products or providing services. This indicator is involved in the analysis of the overall efficiency of the company, and is also used to assess the productivity of using the OS in production.
As a rule, capital productivity is considered in dynamics, comparing several time periods. This allows the economist to state the complete involvement of fixed assets in the work process, identify unused objects, the implementation of which will only improve the condition of the company, or control the processes of commissioning new capacities. Analysis of capital productivity reveals investment bottlenecks and helps determine an effective strategy for future investments in fixed assets.
Standard values for the indicator have not been established, but its decrease compared to previous analyzed periods is a negative trend, indicating a decrease in the financial stability of the company in general and a decrease in the efficiency of using OS in particular. Each industry determines its own industry average levels of permissible capital productivity values, and exceeding them by an individual company indicates an increase in competitiveness, and a decrease becomes an indicator of its decrease, although the introduction of new capacities or the reconstruction of existing ones can also lead to a temporary drop in capital productivity.
Capital productivity: formula for calculating the balance sheet
To calculate the indicator, key reporting values are required - the amount of income received (usually revenue, since it reflects sales results, sometimes profit) and the cost of fixed assets (usually the full cost, but with various analytical actions available, idle infrastructure facilities or large volumes of unfinished work - only directly used). The separation of the funds involved in the work process makes it possible to determine the production capital productivity, the value of which is necessary for a basic analysis of production efficiency.
Thus, when calculating capital productivity, they use indicators of the cost of fixed assets according to the balance sheet (line 1150 of the balance sheet) and revenue according to the financial results report (line 2110 of the financial statement).
Capital productivity - balance formula:
F o = page 2110 / page 1150
To obtain a more accurate result, experts recommend using the fixed asset value indicator not at the end of the reporting period, but an average value, for example, the average annual cost, which is calculated by dividing the fixed assets amount by 2 at the beginning and end of the year.
Capital return, capital productivity and capital intensity
Another important indicator of the rational use of assets in a company is capital profitability, i.e. the ratio of book profit to the average annual cost of fixed assets, showing the amount of profit per 1 ruble. value of non-current assets. Capital return is calculated using the formula:
F r = line 2400 OFR / ((line 1100 balance sheet at the beginning of the year + line 1100 balance sheet at the end of the year)/2).
In economic analysis, there is also an indicator inverse to capital productivity - capital intensity. It shows the cost of the OS per 1 ruble. manufactured product. A decrease in the value of capital intensity is a positive trend in the development of the company, indicating the rational use of production assets. The formula for calculating capital intensity is the ratio of the cost of fixed assets to the income received, i.e. is the inverse of the capital productivity formula:
F e = page 1150 / page 2110.
Calculation of capital productivity of an enterprise using an example
Let's calculate the capital productivity indicator based on the company's reporting data:
Average annual cost of OS:
For 2016 – 1387 tr. ((1236 + 1538) / 2);
For 2017 – 1494 tr. ((1538 + 1450) / 2);
For 2018 – 1376 tr. ((1450 + 1302) / 2).
Capital productivity of fixed assets:
In 2016 – 2.60 rubles. (3600 / 1387);
In 2017 – 2.54 rubles. (3800 / 1494);
In 2018 – 3.05 rubles. (4200 / 1376).
for 1 rub. The company's OS income was 2.60 rubles in 2016, 2.54 rubles in 2017, 3.05 rubles in 2018. Fluctuations in the capital productivity indicator - a decrease in 2017 and an increase in 2018 compared to 2016 - may indicate the introduction of new equipment or reconstruction of equipment in operation. This is evidenced by an increase in the cost of fixed assets and a slight decrease in the return on funds (to 2.54 rubles). Increasing the indicator to 3.05 rubles. in 2018 indicates an increase in output, labor productivity or rational use of OS (in a complex of factors or individually).
When a company has infrastructure facilities that are not used in production, but socially necessary, the economist will have to calculate the capital productivity minus the cost of these fixed assets in order to determine the capital productivity of fixed assets used in the production of goods.
Let’s supplement the previous calculation with data: the average annual cost of unused fixed assets in 2016 is 320 thousand rubles, in 2017 – 302 thousand rubles, in 2018 – 284 thousand rubles.
Production capital productivity will be:
In 2016 – 3.37 rubles. (3600 / (1387 – 320));
In 2017 – 3.19 rubles. (3800 / (1494 – 302));
In 2018 – 3.85 rubles. (4200 / (1376 – 284)).
The downward trend in production capital productivity in 2017 and an increase in 2018 continues, but the amount of income per ruble of fixed asset cost has increased. This indicator reflects income from operating assets directly involved in production.