Capacity Utilization Rate

Capacity Utilization Rate, also called also called Operating Rate, is a metric used to compute the rate at which output levels are being met or used. The output is displayed as a percentage.

Capacity Utilization Rate

Capacity Utilization Rate, also called also called Operating Rate, is a metric used to compute the rate at which output levels are being met or used. The output is displayed as a percentage.


Capacity Utilization Rate Formula

Capacity Utilization Rate formula:  (Actual Output – Potential Output) / Potential Output x 100

Capacity Utilization Rate Interpretation

The Capacity Utilization Rate assists in verifying the level at which piece costs will rise. The rate is primarily used for companies that manufacture physical products instead of services, as it is easy to quantify goods than services.  The Capacity Utilization Rate can provide you a clearer idea of the total utilization of resources and how better the production company can fare in case the total output is increased without it effecting the cost of production to the company. 

Although Capacity Utilization Rate is important, it should not be used in isolation. The decrease in the capacity utilization rate percentage denotes business slowdown, an increase shows business expansion.

Capacity Utilization Rates can be calculated by industry or sector as well as by individual company. By graphing the Capacity Utilization Rates of major industries, analysts can provide an indication of whether or not the stock market will rise or fall.

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