Capacity Utilisation
The proportion of installed productive capacity that is actually being used.
Formula
Capacity Utilisation = Actual Output / Maximum Possible Output x 100
Unit
%
In depth
Capacity utilisation is the best single indicator of when a private investment cycle will turn: firms do not build new plants while existing ones sit idle, and they must build once utilisation approaches physical limits. Levels above roughly 75% have historically preceded capital expenditure upturns in India, since the lead time to build means firms must commit before running out of capacity. High utilisation is also inflationary, because supply cannot expand quickly to meet further demand. The Reserve Bank publishes a quarterly series based on its OBICUS survey.
Worked example
Utilisation rising from 71% to 78% over two years signals an approaching capital expenditure cycle. Firms that wait until 90% will not have new capacity ready for three years, which is why the order comes earlier.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Capacity Utilisation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.