6/13/2023 0 Comments Capital intensity ratio![]() ![]() Coca Cola Company on the other hand utilized $1.72 of assets to generate $1 of revenue. It used only $1.06 dollars per $1 of revenue. PepsiCo seems to be using its assets more efficiently. Compare capital intensity of both the companies and conclude which one is more efficient using this single metric.Ĭoca Cola Company's capital intensity ratio PepsiCo's total asset turnover ratio for equivalent period was 0.94. TRue TRUE OR FALSE: One of the first steps in arriving at a firm's forecasted financial statements is a review of industry-average operating ratios relative to these same ratios for the firm. It indicates the performance of assets and their ability to generate profits. TRUE OR FALSE: The capital intensity ratio is the amount of assets required per dollar of sales and it has a major impact on a firm's capital requirements. Total assets at the end of the period were $79,974 million. The capital intensity ratio is calculated by dividing total assets by sales. $$ \text $$ ExampleĬoca Cola Company (NYSE: KO) earned $46,542 million in financial year 2011-2012. FormulaĬapital intensity ratio equals total assets divided by sales: However, for companies in the same industry and following similar business model and production processes, the company with lower capital intensity is better because it generates more revenue using less assets. A high capital intensity ratio may be due to lower utilization of the company's assets or it may be because the company's business is more capital intensive and less labor intensive (for example, because it is automated). It is reciprocal of total asset turnover ratio.Ī high capital intensity ratio for a company means that the company needs more assets than a company with lower ratio to generate equal amount of sales. It is calculated by dividing total assets of a company by its sales. Capital intensity ratio of a company is a measure of the amount of capital needed per dollar of revenue. ![]()
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