* Is High or Low Best: Lower is Better
Capital Equipment Expense as a Percentage of Plant Revenue measures the cost of purchasing machinery directly involved in the production of goods in relation to the amount of revenue the plant generates over the same period of time. A high value for this metric may be related to multiple factors, including inefficient procurement processes (i.e., purchasing unneeded or overly expensive equipment), low quality of installed equipment (such low quality equipment can require frequent replacement or maintenance), poor preventative maintenance practices, inaccurate demand forecasting methods and sub-par production employee training and performance. Exorbitant capital equipment expenses can lengthen the time it takes for the company to produce a profit from the goods they produce which in turn can expose the company to financial risks by preventing on-time payment of liabilities.
The expense incurred by capital equipment divided by the total revenue generated by the plant, or production facility, over the same period of time, as a percentage. Capital equipment expenses are the fixed one time costs that the plant incurs when purchasing machinery that is used directly for the production of goods.
Two values are used to calculate this KPI: (1) the capital equipment expense incurred by the company, and (2) the dollar amount of revenue generated by the plant, or production facility, over the same period of time. Capital equipment expenses are defined as the fixed one time costs that the plant incurs when purchasing machinery that is used directly for the production of goods.
(Capital Equipment Expense Incurred / Plant Revenue Generated) * 100
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