Asset Intensity is the number of assets needed to generate the given amount of sales. It often depends on the number of assets put in for operational purposes which are termed as “Operating Assets” and how much sales it can generate, in turn.
The formula below can help businesses calculate their asset intensity at the end of the year so that they can estimate what would be a good asset intensity to maintain for the next calendar year -
Asset Intensity = Operating Assets / Sales
For example, if a local food vendor’s operating assets are worth $4000 and sales generate around about $3500 per month, the asset intensity would be ($4000 / $3500) = $1.14.
Capital intensity and asset intensity can be two very confusing terms since the asset is everything of value owned by a company or business and capital is the money and asset a business entity actively invest in the business.
Use of the Term in Sentences
- In the real estate and commodity industries, it has been rather hard to maintain the asset intensity during the past decade.
- Inventory turns, asset intensity and demand-flow are three of the most prolific measures of manufacturing efficiency.
- Asset intensity and capital intensity are not similar in nature though it seems close in theory.