How much capital is required to produce sales? I think this is an interesting question across U.S. economic sectors. Some sectors require boatloads of capital, others very little. Below are two looks at capital intensity (using capex-to-sales and assets-to-sales). For both, higher numbers indicate more capital intensive businesses.
Utilities and Telecoms are traditionally the most capital intensive sectors, requiring tons of assets and capex to produce sales. Conversely, Consumer stocks have traditionally required far fewer assets to produce sales. Of note is the major rise in Capex/Sales for the energy sector, as more expensive means of extracting fossil fuels (tar sands, shale, etc) have become more important.
In a future post I’ll analyze whether or not these have been useful factors for stock selection, both within and across sectors.
How do you think capital intensity should factor into the investing process? I’d love to hear your thoughts below on the utility of these factors.