Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis Advantages
 Ratio Analysis
 Liquidity Ratios
 Cash Ratio
 Cash Ratio Formula
 Quick Ratio
 Quick Ratio Formula
 Current Ratio
 Current Ratio Formula
 Acid Test Ratio Formula
 Defensive Interval Ratio
 Working Capital Ratio
 Working Capital Formula
 Net Working Capital Formula
 Changes in Net Working Capital
 Cash Flow from Operations Ratio
 Cash Reserve Ratio
 Operating Cycle Formula
 Current Ratio vs Quick Ratio
 Bid Ask Spread
 Liquidity vs Solvency
 Liquidity
 Solvency
 Solvency Ratios
 Equity Ratio
 Capital Adequacy Ratio
 Liquidity Risk
 Altman Z Score
 Turnover Ratios
 Inventory Turnover Ratio
 Accounts Receivable Turnover
 Accounts Receivables Turnover Ratio
 Accounts Payable Turnover Ratio
 Days Inventory Outstanding
 Days in Inventory
 Days Sales Outstanding
 Average Collection Period
 Days Payable Outstanding
 Cash Conversion Cycle
 Cash Conversion Cycle (CCC) Formula
 Fixed Asset Turnover Ratio Formula
 Debtor Days Formula
 Working Capital Turnover Ratio
 Profitability Ratios
 Profitability Ratios Formula
 Common Size Income Statement
 Vertical Analysis of Income Statement
 Profit Margin
 Gross Profit Margin Formula
 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBIDTA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
 Basic EPS
 Diluted EPS
 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Capital Employed (ROCE)
 Return on Invested Capital (ROIC)
 Return on Sales
 ROIC Formula (Return on Invested Capital)
 Return on Investment Formula (ROI)
 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
 Return on Total Assets (ROA)
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
 Cap Rate Formula
 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Efficiency Ratios
 Dividend Ratios
 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Asset Ratio Formula
 Coverage Ratio
 Coverage Ratio Formula
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 DSCR Formula (Debt service coverage ratio)
 Financial Leverage Ratio
 Financial Leverage Formula
 Degree of Financial Leverage Formula
 Net Debt Formula
 Leverage Ratios
 Leverage Ratios Formula
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
 Solvency Ratio Formula
Capacity Utilization Rate Formula
Capacity utilization is used to assess a company’s operational efficiency. However, this ratio is also used in a broader perspective – it measures the realized potential output. This is important because it shows the company how much they can still utilize.
Here’s the capacity utilization rate formula –
Example of Capacity Utilization Rate Formula
Let’s take a simple example to illustrate the capacity utilization rate formula.
Funny Stickers Co. can produce 60,000 stickers a month. During the last year of 2017, they could only produce 40,000 stickers due to the absence of labors. Find out the capacity utilization of Funny Stickers Co.
We already know the actual output of Funny Stickers Co. during the last month of 2017, i.e. 40,000 stickers. The potential output is 60,000 stickers.
By using the formula of capacity utilization, we get –
4.9 (831 ratings)
 Capacity Utilization = Actual Output / Potential Output * 100
 Or, Capacity Utilization = 40,000 / 60,000 * 100 = 66.67%.
From the above, we can also find out the slack of Funny Stickers Co. during the last month of 2017.
 It is = (100% – 66.67%) = 33.33% slack.
Recommended Courses
Explanation of Capacity Utilization Rate Formula
The ratio talks about two separate components.
 The first one is the actual output produced by the company.
 And the second is the maximum output a company can produce in a given period.
For example, if we look at a manufacturing company for a month, we would be able to discover how much the company has produced during the month; and then we can check how much the company can actually produce. Comparing these two will give us a hint about how much capacity the company has utilized during the month.
 If the capacity utilization of a company is less than 100%, then the company can increase its production.
 If we look at it from another point of view, we will also be able to see that this utilization rate talks about how much slack a company is doing in a particular time period.
For example, if we see that the capacity utilization is 56% of a company in a given month, then we would also be able to discover how much the company couldn’t utilize during that particular month. The percentage of capacity that the company couldn’t utilize is called “slack”. In the above example, the slack of the company during the month is = (100% – 56%) = 44%.
Use of Capacity Utilization Formula
To understand the application of capacity utilization, we need to take an example.
Let’s say that a pen manufacturing company has produced 80,000 pens per month at $1 per unit. If in a given month, the pen manufacturing company’s potential output is 170,000 pens at the same cost per unit, then the company is running at 47.06% (80,000 / 170,000 * 100) capacity.
From the above example, it’s clear that capacity utilization talks about operational efficiency. Higher the utilization rate, higher would be the operational efficiency of the company.
Even capacity utilization has a great effect on economic policies. When policymakers make economic policies, they look at capacity utilization to figure out how to stimulate the utilization of capacity in the economy.
Capacity Utilization Rate Formula Calculator
You can use the following this Rate Calculator.
Actual Output  
Potential Output  
Capacity Utilization Rate Formula =  
Capacity Utilization Rate Formula = 



Capacity Utilization Rate Formula in Excel (with excel template)
Let us now do the same example above in Excel. This is very simple. You need to provide the two inputs of Actual Output and Potential Output.
You can easily calculate the ratio in the template provided.
You can download this capacity utilization rate template here – Capacity Utilization Rate Excel Template
Video on Capacity Utilization Formula
Recommended Articles:
This has been a guide to Capacity Utilization Rate formula, its uses along with practical examples. Here we also provide you with Capacity Utilization Calculator with downloadable excel template. Here are the other suggested articles –
Leave a Reply