Fixed assets 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 a single company and the industry and, ultimately, the economy of the whole country. The effective use of fixed assets allows you to increase production volumes, reduce production costs, increasing labor productivity. And this directly affects the increase in return on capital, profitability and, as a result, on the growth of living standards of society as a whole. To achieve these goals, it is important to regularly analyze the degree to which the enterprise uses fixed capital, using various generalizing coefficients for this. One of the most important in this case is the return on assets. It shows the level of turnover of fixed assets and allows you to determine how effectively they are used in production. It is about this indicator that we will talk in the article.
Return on assets: definition and value
As already mentioned, this ratio characterizes the level of use of available capital in the enterprise, in the industry and the economy as a whole. It is determined on the basis of two quantities - released commodity or gross output and the value of fixed assets.
Return on assets shows how much production falls on a unit of fixed assets, and depending on this determines the degree of their use or effectiveness. Moreover, the value of the goods produced can have both natural and monetary terms (volume or value). And the indicator of capital productivity can be calculated for all funds, and only for their part.
Return on assets: formula
At different levels of the economy, a return on assets ratio can be calculated. At the same time, he shows the same thing, namely, production efficiency in relation to the use of capital, but at different scales. At the enterprise level, the annual volume of products manufactured by them is taken to calculate this coefficient. At the industry level, gross value added or gross output is used, and on the scale of the country's economy, the value of gross domestic product.
The capital productivity of fixed assets shows the volume or value of this product per unit (ruble). The coefficient is calculated by the following formula:
product release / value of fixed assets.
As a rule, the average annual cost of capital is taken, however, a number of authors are inclined to a different opinion regarding this indicator. So, often the formula uses the acquisition cost of 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 from this. Return on assets shows the ratio of output to the funds invested in it.
Return on assets and capital intensity
The inverse of the indicator we examined is the ratio of capital intensity. We can say these are two sides of the coin. What does the return on assets and capital intensity of the owner of the enterprise? If the first speaks about the degree of application of fixed assets, then the second - about the need for them. The capital intensity illustrates the value of fixed assets per ruble of the manufactured product. It is determined by the formula:
1 / capital productivity or the cost of fixed assets / output.
Having calculated this ratio, the owner of the enterprise receives information on how much financial resources need to be invested in fixed assets in order to obtain the required volume of production. If the capital intensity is reduced, then this indicates labor savings.
Both indicators characterize the efficiency of using existing capital. If it rises, then capital productivity increases, and capital intensity, on the contrary, decreases. Is this a favorable trend? and every enterprise, one way or another, strives for it.
Factors affecting return on assets
Return on assets shows how successfully the company operates. This is influenced by a wide variety of reasons, including those that are outside the production process. Let's see what helps to increase capital productivity:
- technical re-equipment, modernization and reconstruction;
- better use of capacities and uptime;
- reduction in the cost of a unit of capacity at the enterprise;
- change in the structure of funds (increase in the ratio between production and non-production assets);
- better development of working capacities;
- market and other factors.
In addition, the improvement of product quality should be taken into account. With other conditions unchanged, it also contributes to a more efficient use of capital, the growth of capital productivity and, consequently, profitability.
