How to calculate input-output ratio?

Calculation formula:

Input-output ratio = total investment / total added value during the project life cycle

The larger the value, the better the project economics. The statistical indicators are explained like this:

The total output is composed of C+V+M, where C is the material consumption value, V is the artificial value, M is the surplus value, and its net output value is the total output minus Remove C material consumption value, that is, V+M

Input-output ratio = (V+M)/(C+V+M) The core of the input-output calculation is for different expense types. The corresponding market activities have different returns; therefore, different expense categories have different input-output ratios. By directly calculating the output based on the input, the cost efficiency can be calculated; when the marginal benefit is zero, profit is maximized.

Extended information:

The input-output ratio refers to the ratio of the total investment of the project to the total industrial added value produced during the operating life cycle. It is suitable for the economic effect evaluation indicators of science and technology projects, technological transformation projects and equipment renewal projects. The smaller the value, the better the economic effect.

There is no doubt that the investment calculation period refers to the construction period (or renovation period) of the project. There are also two views on the calculation period of output. One view is that "output" should be calculated as one year's income or net income when the project reaches normal output after it is put into production; another view is that "output" should be calculated as the income or net income during the entire operating life of the project. sum.

Obviously, the latter concept is consistent with the connotation of "input-output ratio". Because the operating life of different projects may be long or short, the income or net income of only one year cannot indicate its level of income.

The "input" in "input-output ratio" refers to the total static investment amount of the project; "output" refers to the sum of the added value in each year during the entire operating life of the project. Expressed as a formula: R = K/IN = 1/N

In the above formula, K is the total investment, IN is the total added value in each year during the project life cycle, N = IN/K, N The larger the value, the better the project economics.

Among the evaluation indicators for investment projects and technology projects, in addition to well-known indicators such as net present value, internal rate of return, investment payback period, and investment rate of return, there is another one that is often used by project management departments. The indicator is the "input-output ratio".

"Input-output ratio" as an economic effect evaluation index has not been introduced in various economic management works. However, because its meaning is relatively intuitive and easy to understand, it is favored by some investment decision-making institutions and decision-makers. When many investment decision-making institutions and decision-makers use "input-output ratio", they understand its meaning as "the ratio of project input funds to output funds, that is, how many units of funds can be produced by investing 1 unit of funds in the project." Its quantity is often expressed in the form of "1:N". The larger the N value, the better the economic effect.

Although the input-output ratio is a static indicator, when the project construction period and operating life period are determined, there is a one-to-one relationship between the input-output ratio and the internal rate of return. Therefore, it can be based on the benchmark internal The benchmark input-output ratio for rate of return evaluation. The benchmark input-output ratio is 1:3, which can be slightly lower for small projects and slightly higher for large projects.

Output is the tangible material output and intangible service output that producers provide to the society. Tangible material output includes food, machinery and equipment, daily necessities, etc.; intangible service output includes medical, Information services, financial services, tourism services, etc.

Output is the basis for an enterprise to obtain sales revenue. Output is a literary word, the verb means "to produce" and the noun means "output".

The output classification material input output, investment in "hardware" construction such as the purchase of document facilities, audio-visual equipment, etc. output direct economic benefits. Spiritual input and output, investment in spiritual education, produce people's social values.

Input-output analysis has gone through a long-term development process since it was proposed. The characteristics of its development are:

① From a closed type to an open type, that is, from considering residents’ consumption as an input for the reproduction of labor force, to treating residents’ income as the output of labor force, and assuming that both There is a linear functional relationship between them, and it is developed into a model that uses intermediate products as endogenous variables and investment, government consumption and household consumption or added value as exogenous variables.

② From a static model to a dynamic model, that is, from considering investment as a column of the final product without considering the time factor, to moving investment from the right side of the equation to the left, and expanding it into one or several matrices , a model that calculates the investment required to increase unit output value and endogenizes it.

③ From a single input-output model to a combination with modern scientific management methods, that is, a combination of the input-output model with econometric methods, optimal control theory, etc.

Reference material: Baidu Encyclopedia of input-output ratio