Capital productivity indicator shows the volume of the entire gross or commodity position in relation to the price of fixed assets of the company. Back in the Soviet Union, it was considered evidence of the effectiveness of an organization. And there is nothing to be surprised at, since capital productivity shows how many goods (products) a given enterprise produces per unit price of fixed assets invested in it.
In terms of importance, it can be compared with the depreciation of fixed assets or with the profitability (performance indicator) of products, since it is on the basis of the values of capital productivity that we can conclude how well this or that enterprise works. To do this, as a verification figure, they usually use a comparison of the volume of products already launched on the market and the price of fixed assets that were involved in the manufacturing process. After that, determine the amount of net profit, which is then compared with deductions for depreciation. In the event that depreciation is lower than the income received, then the company's work can be called successful and efficient.
This indicator also helps entrepreneurs make decisions when purchasing new equipment. If the income from its use exceeds the purchase costs, then we can assume that the businessman or company has effectively invested money in the business. The safety net is precisely the return on assets. Its formula should be known to any businessman. Next, we will learn how to calculate this important indicator.
How is capital productivity calculated? Calculation formula
There are several formulas. The main one looks like this:
Return on assets = manufactured products / initial price of fixed assets.
You may have a logical question about why in this formula the initial price of fixed assets is displayed ? This can be explained by the fact that the value is determined for the released goods in relation to the funds invested in it. It is worth noting that the authors have not yet come to a consensus on how to determine this formula for this indicator. Therefore, there is such a formula for capital productivity:
Return on assets = release of goods for the year / average annual price of fixed assets,
and
Return on assets = goods / ((fixed assets at the end of the period + fixed assets at the beginning of the period) / 2).
What factors influence the result when calculating return on assets?
In addition to the price of fixed assets and depreciation, the following factors affect the result of capital productivity to one degree or another:
- change in the amount of equipment or its overhaul;
- change in the ratio of fixed assets of non-production and production value;
- change in the volume of goods produced due to market or other factors;
- change in production load due to changes in the product range for release.
However, you should be aware that return on assets does not take into account some other factors. At this stage, you need to determine:
- change the order and structure of fixed assets intended for production;
- change of downtime of equipment and machinery;
- change in equipment efficiency.
Return on assets: formula for improving efficiency
How to increase return on assets? There are several ways to do this:
- an increase in the number of fixed equipment, which will entail a change in the order and structure of fixed assets;
- sales of equipment that is rarely used or not used at all in the process;
- elimination of downtime in the company;
- production of products that have a higher value added;
- improving production efficiency, which is achieved by increasing labor productivity and in other ways.
We can say that there is an inextricable link between such concepts as “productivity” and “return on assets”. The formula that was given in this article can be useful to every entrepreneur and businessman.