Capacity Utilization is a measure of how much of a company's potential output is actually being used. It is expressed as a percentage, calculated by dividing the actual output by the maximum possible output. For example, if a factory can produce 100 units but only makes 80, the capacity utilization is 80%. High capacity utilization indicates efficient use of resources, while low capacity utilization may suggest underutilization or inefficiencies. Businesses often aim for a balance, as extremely high levels can lead to overwork and increased wear on equipment, while low levels can signal a need for adjustments in production or demand management.