Question

Marco's has current annual sales of $52,600, net fixed assets of $38,900, and total assets of $56,300. The firm is currently operating at 79 percent of capacity. What is the capital intensity ratio at full capacity? 0.96 1.18 91 85 1.10

Answer 1

Capital intensity ratio of a company can be defined as the calculation of the amount of capital needed per currency earned of revenue. The currency can be Dollar/ pound etc. It is a measure of real terms of Capital with respect to all other factors.

Calculation =

It is calculated by dividing total assets of a company by its total sales. It is also the reciprocal of total asset turnover ratio.

Current Annual sales= $52,600

Net Fixed Asset= $38,900

Total Assets= $56,300

Here, Since the entity is operating at only 79% ,

Sales at 79%= $52,600

therefore total Sales= $52,600/79%

= $ 66582.27 (approx)

Capital Intensity Ratio= Total Assets/ Total Sales (Revenue)

= Total Assets= $56,300 / $ 66582.27 (approx)

= 0.85 (approx)

Therefore, the correct answer is option D = 0.85