There are many different indicators that assess the detail of enterprises, the financial condition and effectiveness of the management of human and other resources. An important area is economic analysis, which is responsible for determining the level of efficiency of use and involvement of fixed assets in the production process.
In order to characterize these processes, three indicators are used: capital intensity, capital productivity, capital ratio. The formula for calculating the last indicator is given below. Let us dwell in more detail on the capital-labor ratio.
The concept and meaning of the indicator
The capital-labor ratio is an indicator that helps to determine the degree of provision of all employees with fixed assets of the enterprise.
It has a direct impact on the value of indicators such as capital productivity and capital intensity, with which it is often confused.
To avoid this, we will analyze what these indicators mean.
Not to be confused with return on assets and capital intensity
Return on assets is the ratio of the cost of manufactured products to fixed assets of the enterprise, which are calculated as an average annual indicator. Thanks to this indicator, one can express how effectively all fixed assets are involved in the production process.
Capital intensity - an indicator that is calculated to determine the necessary number of production assets for the production of a unit or a certain amount of production.
Capital ratio. Calculation formula
Wrong are those people who believe that the capital ratio of fixed assets is different from the capital ratio of labor. This is a misconception.
The capital ratio of fixed assets (the calculation formula of which requires the availability of data on fixed assets and the number of employees) is the same indicator as the capital ratio of labor. In textbooks there is no difference between these concepts, and the formulas by which they can be determined are completely identical.
The ratio of capital to labor ratio is determined by the formula:
- Fv = SSOP: SSH, where
Fv - capital-labor ratio;
SSOF - the average cost of fixed assets during the annual period of time;
HSS - the average number of employees for the year.
The average annual value of fixed assets and the average number of employees are needed to determine the capital-labor ratio. The calculation formula clearly shows this. How to calculate them, we will analyze further.
The average annual value of fixed assets
This is a special indicator that displays the average total cost of fixed assets of the enterprise. It is used in calculations related to the efficient use of fixed assets of the company.
In order to calculate the required cost, you can use the following formula:
- SSOP = OSn + OSv x Ch1: 12 - OSvib x Ch2: 12, where
OSN - the total value of fixed assets at the beginning of the period;
OSv - the value of those fixed assets that were put into operation during the period;
OSby - the value of fixed assets that were disposed of during the period;
P1 - the number of months in which the newly introduced fixed assets were operated;
P2 - the number of months in which retired fixed assets were not employed in production.
Average number of employees
This is one of the indicators that you need to know in order to calculate the capital-labor ratio. The formula for calculating the number is quite simple if you correctly understand the definition of the indicator.
The average number of employees is an indicator of an enterprise that displays the average number of employees for a given period. It can be calculated both for a month, and for a quarter, a year.
It can be calculated as follows:
- HSS = MF - RB - Hand, where
MF - the average number of employees for a certain period;
RB - workers who are on maternity leave, pregnancy, childbirth;
Ruch - workers who are on leave without pay during training or admission to educational institutions, if such leave is required by law.
Capital ratio analysis
The most important thing is not to make hasty conclusions. You already know what capital-labor ratio is. The calculation formula is also known to you. All this does not mean that you can correctly interpret the value of the indicator.
Just knowing the dynamics is not enough. The analysis should be done only in parallel with the calculations of labor productivity. For example, when the capital -labor ratio increases faster than labor productivity, this suggests that the resources of the enterprise are used irrationally.
This situation may also indicate an increase in managerial staff, which is not forced, as it is not confirmed by the corresponding increase in fixed assets.
Now you know what the capital-labor ratio of labor is (the formula for calculation is given above in the article), and also understand how it is necessary to analyze the values of this indicator.
Do not forget that this indicator is only part of the economic analysis, which is necessary to understand the state of affairs of a company. Therefore, knowing only the value of capital-labor ratio will not be able to help draw the right conclusions about the economic activities of any organization.
Professional economists, mainly working in audit companies, are engaged in such analyzes. Western corporations employing experienced specialists from all over the world can afford the same pleasure.