Capital-labor ratio is the provision of personnel with fixed assets

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

One of the areas of production management is the rational use of available resources and the effective management of the material and technical subsystem of the company. The analysis of the material and technical subsystem, among other things, makes it possible to identify the level of provision of the personnel of the enterprise with the means of production, i.e. capital-labor ratio. This allows you to track the effectiveness of the use of investments in production.

Management of the material and technical subsystem of the company

In order to identify the strengths and weaknesses of the company in the competitive struggle, managers analyze the real state and, as a result, determine the main directions for the development of the material and technical base of the organization.

Such monitoring allows you to implement a number of key tasks:

- determine the composition of non-current assets of the enterprise, the share of fixed assets in theircomposition, availability of them to the enterprise;

- analyze the degree of wear and age of OF;

- analyze the availability and degree of compliance of production areas with the technology used and production conditions; security of the production program with available material resources;

- calculate the indicators of the qualitative state and movement of fixed assets of the organization in different time periods (the growth rate of fixed assets, suitability, renewal, depreciation, retirement rate);

- analyze the efficiency of the operation of fixed assets by comparing the indicators of capital productivity, capital intensity, capital-labor ratio;

- conduct a comparative analysis among the indicators of the intensity of the movement of fixed assets of the production system for two or more consecutive periods.

Indicators of the intensity of OF renewal

The methodology for calculating the intensity of the movement of the OF is aimed at analyzing the main indicators:

a) The suitability coefficient reflects the possibility of further use of the OF, calculated as the ratio of the residual value of the OF to their initial cost.

b) The fixed assets renewal coefficient allows you to determine the share of the introduced FC in the cost of the FC at the end of the year, as well as the degree of their renewal:

Renewal coefficient=Cost of entered fixed assets for the analyzed period/ Cost of fixed assets at the end of the period

c) The depreciation coefficient reflects the degree of depreciation and reimbursement of costs for the formation of fixed assets, is calculated as the ratio of the amount of depreciation to the initial cost of the fixed asset:

Depreciation factor=Amount of depreciation of OF/Initial cost of OF

d) FC growth rate is the ratio of the growth rate of fixed assets, calculated as the difference between the cost of commissioned and decommissioned FC, to the value of FC at the beginning of the period.

e) The FA retirement rate shows the share of retired (withdrawn) FAs in their value at the beginning of the year, reflects the degree of loss of capital assets.

Efficiency of operation of fixed assets by business entities

The effectiveness of the use of OF is characterized by a number of indicators, which are usually divided into general and particular. The methodology for calculating the first, reflecting the efficiency of using the PF of a business entity, includes the analysis and comparison of the following indicators:

1) The return on assets is calculated as the ratio of the volume of production produced by the enterprise for the year (Q) to the average annual cost of fixed assets:

Capital return=Q / OF

2) Capital intensity is the inverse of capital productivity:

Capital intensity=OF / Q

3) Capital-labor ratio is the ratio of the average annual cost of fixed assets to the average headcount of the organization (P).

Capital ratio=OF / P

Capital-labor ratio is an indicator that reflects the cost of fixed assets per employee

Capital-labor ratio

Capital-labor ratio, along with other indicators such as capital productivity,capital intensity, profitability of fixed assets, helps to determine and establish how effectively the management of the enterprise uses fixed assets.

As mentioned above, the capital-labor ratio is the ratio of the average annual cost of fixed assets to the average number of employees of the organization. The indicator reflects the extent to which the personnel of the enterprise are provided with the means of labor.

It should be noted that additional investment in production is accompanied by an increase in capital-labor ratio. At the same time, this phenomenon can be called positive only if the process of increasing the capital-labor ratio is simultaneously accompanied by an increase in labor productivity.

As you know, labor productivity expresses the amount of products produced by one employee at the enterprise, and is calculated as the ratio of production volume to the number of employees.

Conclusions

In view of the foregoing, capital-labor ratio is a value that is directly proportional to the indicator of labor productivity and inversely proportional to the rate of return on assets. In other words, only when the growth of labor productivity outstrips the growth rate of return on assets, investments are used effectively.