Capital efficiency

This indicator is particularly useful where investment capital is a main constraint, it is a measure of capital efficiency, sometimes referred to as NPV/NPC. 

Sometimes, fixed assets are purchased via short-term loans, which can lead to hquidity problems. For the most part, fixed assets should be financed from long-term or permanent capital such as stocks or bonds. The proven abihty of management to handle working capital efficiently will put a company in a better position to obtain such longterm capital when required, because the confidence of bankers and stockholders will have been obtained. 

Capital cost per unit of capacity declin fay over 40% as plant size is increased to 4X base case. The reduction is about 25% of the base value for the 2X case, but only 8% of the base value between the 3X and 4X cases. This kws diminishing returns in the increase of capital efficiency as plant size increases. 

Generally, maintenance works are considered as those for maintaining the capital invested while rehabilitation works are considered as those for increasing capital efficiency. 

Project Lookbacks (Gillard, 2001) The lookbacks should be conducted for all projects to see if they deliver the promised results and address what went well and what did not and why. Care should be taken to avoid interdepartmental disputes. The emphasis should be on learning, avoiding mistakes, and doing better the next time. The review should answer the following questions o What capital efficiency are the projects delivered on average o Are projects delivering the economic return promised at the time of approval ... 

The five basic drivers of enhanced shareholder value are shown in Figure 3.4. They are revenue growth, operating cost reduction, fixed capital efficiency, working capital efficiency and tax minimisation. All five of these drivers are directly and indirectly affected by logistics management and supply chain strategy. 

---