Capital intensity (PP&E ÷ revenue)
Returns on capitalHow large the fixed-asset base is relative to a year of revenue.
Formula
Capital intensity = net property, plant & equipment ÷ revenue
Why it matters
This is a snapshot of how asset-heavy the business model is. A low ratio means the company produces its revenue with little physical plant, so most incremental profit can flow to owners rather than back into equipment. A high ratio means the business must continually replace and expand expensive assets — depreciation is a real, recurring cash cost, and downturns are more painful when a large fixed base must be fed regardless of demand.
What good looks like
Below 0.15 is asset-light (most software, services, and branded-goods companies). 0.15–0.5 is moderate. Above 0.5 — utilities, railroads, telecoms, heavy manufacturers, chip fabs — means the balance sheet works as hard as the income statement. High intensity is not automatically bad, but it demands correspondingly durable pricing to earn adequate returns.
Caveats
The ratio understates true capital intensity for companies that lease assets or outsource manufacturing, and overstates it for companies mid-expansion whose new assets have not yet produced revenue. Old, heavily depreciated assets shrink net PP&E and flatter the ratio even when replacement costs loom. Interpret alongside sales efficiency, which measures the trend rather than the level.