Capital Intensity
How much a company must invest to generate its sales, most often capital expenditures divided by revenue.
What it is
Capital intensity measures how much capital a business has to spend to produce its revenue. The most common practical version divides capital expenditures (capex) by revenue, showing the share of every sales dollar that goes back into property, plant, and equipment. A related textbook version divides total assets by revenue (the inverse of asset turnover). Low capital intensity describes asset-light businesses like software and consulting; high capital intensity describes utilities, telecom, railways, and heavy manufacturing.
Why it matters
Asset-light, low-intensity businesses convert more of their profit into free cash flow because less cash is consumed by reinvestment, which is why they often command premium valuations. High-intensity businesses must keep pouring cash into their asset base just to stay competitive, leaving less for dividends and buybacks. The pitfall: a low capex-to-revenue ratio is not automatically good, because it can also mean a company is under-investing and starving future growth or deferring needed maintenance, so check whether spending covers at least maintenance needs and compare only within an industry.
How it's calculated
The most common version divides capital expenditures by revenue for the same period; lower means less reinvestment is needed per dollar of sales. An alternative textbook ratio divides total assets by revenue, which is simply one divided by asset turnover. Confirm which definition a source uses before comparing companies, and compare only within the same industry since norms differ enormously.
How Quintarthai uses it
Capex and revenue needed to gauge capital intensity are on the Financials tab of a company deep-analysis page, where you can see reinvestment alongside free cash flow; the Knowledge Base covers related cash-flow concepts.