Determining a method to measure the capital intensity for enterprises listed in the industrial sector of the Johannesburg Stock Exchange for the period 1989 to 1996

[摘要] ENGLISH ABSTRACT:A definite need exists for a measure which can be used to determine the degree of capitalintensity of an enterprise. One of the main reasons why it is important to determine if anenterprise is capital or labour intensive is that the two types of enterprises react tochanges in the economic environment in different ways. Some changes in the economicfactors will have a totally different effect on a capital intensive enterprise than they wouldhave on a labour intensive one. The degree of capital intensity of an enterprise cantherefore be used to predict how it will react to economic changes, and it is therefore avaluable source of information for financial decision-making.The measurement of capital intensity, however, presents a major problem. A largenumber of different measures have been developed and used in the literature. Thesemeasures include the measures of total assets to revenue; property, plant and equipmentto revenue; property, plant and equipment to total assets; depreciation as a percentage ofrevenue; as well as property, plant and equipment per employee. A number of measuresare also based on value added figures, and these include salaries to revenue; value addedper employee; property, plant and equipment to value added; and salaries to value added.In the literature most researchers provide no or little justification for their preferredmeasure of capital intensity.The main objective of the study is to determine an appropriate method to measure capitalintensity. For this purpose the above-mentioned measures, which are generally used todetermine capital intensity, are considered critically and evaluated by classifyingenterprises listed in the Industrial Sector of the Johannesburg Stock Exchange during theperiod 1989 to 1996. During this period the South African economy experienced adecline, followed by an upswing in the economic cycle.Principal component analyses (PCA) are used to analyse the data. These analyses arecarried out for each year separately as well as for the period as a whole. Biplots are usedto provide a multidimensional graphic representation of the results.The results indicate that the five traditional measures of capital intensity which are notbased on value added figures are all suitable to use as measures of capital intensity. Onlyone of the measures based on value added figures, however, are able to indicate capitalintensity. The five traditional measures of capital intensity which are not based on valueadded figures, as well as the measure property, plant and equipment to value added, aretherefore included in the principal component analyses. The principal component scoresobtained from the first principal component are proposed as a composite measure ofcapital intensity. These principal component scores represent a linear combination of thesix measures of capital intensity. The relative contributions of the various measures tothis composite measure are also investigated, and it is found that all six the measuresprovide an important contribution. The results indicate that a number of enterprises listedin the Stores and Food sectors are relatively less capital intensive, while enterprises listedin the Building and Construction, Engineering, Steel and Allied, and Electronics sectorsare relatively capital intensive. A visual evaluation of the results indicates that theproposed method IS able to distinguish between capital and less capital intensiveenterprises.The results of the study provide researchers with a more efficient way of measuringcapital intensity, and can be used to provide more information about the effect of changesin the economic cycle on the expected financial performance of enterprises.

[发布机构] Stellenbosch University