We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Capital Intensity?

Mary McMahon
Updated Jan 20, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Capital intensity is a measure of efficiency, in regard to how much money a company needs to spend to make money. Companies with high capital intensity are not operating very efficiently and may not hold a strong market position. Lower intensities suggest a higher return on investment. Some industries are naturally more intensive that others because of the infrastructure support they require in order to function.

A simple measurement of capital intensity can be made by dividing assets by sales revenue. For the purpose of this calculation, the assets include equipment, structures, labor, and other costs the company has incurred in order to produce products and services. If the capital intensity is greater than one, it means the company is spending more than it brings in. Ratios less than one indicate that the company is generating a return on its investments. The size of the return may vary.

Some reasons companies might have high capital intensity include the use of complex, expensive equipment and large numbers of laborers. Companies that need large, complicated machinery to produce products will need to spend more in order to produce, although this may equalize over the long term as the company’s initial investment in assets is spread out over many years. Labor intensive industries also require a lot of capital, because the company needs to pay workers in addition to paying taxes, purchasing insurance, and handling other costs associated with employees. These expenses can drive up the investment needed to generate returns.

A variety of measures can be used to lower capital intensity and make a company more efficient. Companies may try to cut costs by streamlining manufacturing, for example, or by reorganizing management structures. Employees themselves may have recommendations. Companies may also take a long strategic position, investing large sums one year in assets that will begin to pay for themselves over time. A temporary dip in profits might be an acceptable tradeoff for the eventual benefits.

Companies can use calculations of capital intensity for internal reference and research purposes. They may track not just performance as a whole, but also individual departments. Divisions within a company may be more or less efficient. Finding out which ones are not contributing to the bottom line may allow a company to restructure, withdraw some products, or change practices within a department to make it efficient again. These calculations can also be discussed in annual reports, where executives may wish to explain decisions to stockholders and other investors.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.