# How to Calculate Capital Asset Velocity

Share It

Asset velocity tells how efficiently a company is using its assets to generate revenue. For example, a company with an asset velocity of 2.1 produced \$2.10 for every \$1 worth of assets on its books. Capital asset velocity, meanwhile, slices the number a little more finely. A company's total assets include cash reserves, accounts receivable, inventories and stock investments. Capital assets are just the hard assets it uses to transact its business -- land, buildings, equipment, and vehicles. Capital asset velocity tells you how efficiently the company produces revenue from its investment in those particular assets.

Find the total revenue figure on the most recent income statement of the company you're analyzing. This is often the top line of the statement and is usually labeled "sales," "total revenue," or "net sales."

Find the net property, plant and equipment figure on the company's most recent balance sheet. This will appear as a noncurrent or long-term asset on the balance sheet. PP&E, as it's called in finance, represents the company's capital assets.

Divide total revenue by PP&E. The result is the company's capital asset velocity.

#### Tips

• Net PP&E is the total value of capital assets minus accumulated depreciation. If the balance sheet provides both a gross PP&E figure and an accumulated depreciation figure, subtract depreciation from gross PP&E to get the net PP&E. Some balance sheets don't provide a single PP&E figure. In this case, you'll have to construct it yourself. Add together any separate entries for land, buildings, equipment, machinery, vehicles, construction in progress, and leases reported as assets. These constitute the bulk of capital assets. Then subtract accumulated depreciation. The remainder is the company's net PP&E.