Asset Utilisation Rate =Translation: Asset Utilisation Rate

The Asset Utilisation Rate — also known as the asset usage rate — is an operational indicator that measures how effectively a company benefits from its available assets, such as factories, equipment, aircraft, and drilling rigs, to carry out business activities and generate revenue. This rate helps identify the difference between the assets a company owns and the assets it actually uses in its operations.

Simple definition: Owning assets does not mean benefiting from them. If a company owns a large number of drilling rigs, but some of them are idle without contracts, the company bears the costs of these rigs without generating revenue from them. The more available assets are put back into operation, the higher their utilisation rate becomes.

Calculation method: The rate can be calculated based on the number of active assets compared with the total assets available:

Asset Utilisation Rate = Number of active assets ÷ Total available assets × 100

It may also be calculated based on operating hours:

Utilisation Rate = Actual operating hours ÷ Available operating hours × 100

If a company owns 20 drilling rigs ready for work, and 16 of them are actually operating, the Asset Utilisation Rate is:

16 ÷ 20 × 100 = 80%

Note: The calculation method varies depending on the nature of the industry. In airlines, it may be measured by aircraft operating hours; in manufacturing, by the production capacity used; and in drilling companies, by the number of operating rigs or their operating days.

The Asset Utilisation Rate should not be confused with Asset Turnover. The former measures the extent to which assets are used operationally, while the latter measures the amount of revenue a company generates relative to the total value of its assets.

Example: A drilling company owns 30 land rigs, but only 18 rigs are operating under existing contracts, while 12 rigs remain available but idle.

  • Before the new contract: 18 out of 30 rigs are operating, meaning the utilisation rate is 60%.
  • After the new contract: The company put 8 additional rigs back into operation, bringing the number of operating rigs to 26.
  • New rate: The utilisation rate rises to approximately 86.7%.

Result: The company made use of rigs already in its fleet instead of purchasing entirely new assets. This may increase revenue and spread fixed costs across a larger number of operating rigs, thereby supporting operational efficiency.

However, a higher utilisation rate does not automatically guarantee higher profits. The company may incur costs to recondition and maintain the rigs and hire the crews needed to operate them. Therefore, the final outcome depends on the contract value, operating costs, profit margins, and execution efficiency.

What does this mean for you?

  • Measuring operational efficiency: A higher rate generally indicates that the company is using a larger proportion of its assets to carry out work, rather than leaving them idle and generating no revenue.
  • Potential revenue growth: Putting available assets back into operation may increase the company’s revenue without requiring significant capital expenditure on new assets.
  • Spreading fixed costs: When more assets are operating, certain fixed costs, such as administration, insurance, and maintenance, are spread across a larger volume of activity.
  • Improving return on investment: Higher utilisation may help the company achieve a better return on the funds it previously invested in purchasing the assets.
  • Assessing growth capacity: Having available assets gives the company an opportunity to accept new contracts quickly, but it may also mean that part of its capital has remained idle for some time.

Frequently asked question: Does a higher Asset Utilisation Rate mean that the company has become more profitable?

Answer: Not necessarily. A higher rate means that the company is using more assets, but it does not by itself show how much profit they generate. Revenue may increase alongside a significant rise in operating and maintenance costs. Therefore, the utilisation rate should be considered alongside profit margins, cash flows, contract costs, and return on assets.