Total Productivity at breakeven: The dynamics between working capital ratio and profits

Can more output be squeezed from the inputs available and can productivity be increased any further? These are generic but very widely applicable questions that surely cross the minds of managers and CEOs. And these are indeed questions that, if addressed, could mean improved profits and revenues, the ultimate goal of any organization. Productivity is a measure of how effectively and efficiently inputs are being converted to outputs. The concept of Total Productivity (the value sum of all outputs divided by the value sum of all inputs) provides some very important insights about a product or corporation's “breakeven point.” It also suggests that the speed at which an organization recovers its input capital is determined by the ratio of the working capital to the total input capital. This paper discusses the relationship between working capital ratio and total productivity breakeven and its effect on profitability.