![]() ![]() If the company’s total asset balance was $450,000 in Year 0 and $550,000 in Year 1, the total average assets balance is $500,000.įrom the equation below, we can see that the capital intensity ratio comes out to 0.5x. Suppose that a company has $1 million in revenue during Year 1. Capital Intensity Ratio Calculation Example The formula for calculating the capital intensity ratio consists of dividing the average total assets of a company by its revenue in the corresponding period. ![]() Simply put, the capital intensity ratio is the amount of spending required per dollar of revenue generated. One method to gauge a company’s capital intensity is called the “capital intensity ratio.” Learn More → Hedge Fund Primer Capital Intensity Ratio Formula On the other hand, a decrease in an operating NWC asset and an increase in an operating NWC liability causes free cash flows (FCFs) to rise. ![]() accounts payable, accrued expenses) reduces free cash flows (FCFs). accounts receivable, inventories) and a decrease in an operating NWC liability (e.g. Why? An increase in an operating NWC asset (e.g.
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