The best way to improve power factor is by adding capacitors. Low power factor is due to reactive loads (motors, pumps, etc.) that are connected to your electrical system. 

Addition

The best way to improve power factor in the case of motors is to use a motor drive, like a Variable Frequency Drive. These drives allow very precise control over a motor, unlike the very sudden, jerky starting and stopping across the line seen when using a motor starter. They eliminate the huge inrush current required to start motors that causes low PF. 

Answer:

1) Power factor can be calculated by connecting an energy meter [P] (voltage coil in parallel & current coil in series with the load), a voltmeter [V] across load and an ammeter [A] in series with the load. Measure P, V & I.

Since, Active Power (P) = V.I.Cosϕ 

power factor = Cosϕ = P/VI 

2) Power factor is usually (industrially) improved by connecting a shunt (parallel) capacitor bank at feeding end. 

How it works? 

Inductive loads contain both inductors and resistors. But due to phasor difference of coils and caps when voltage is applied across both, the two currents results in a smaller net current finally. So now the angle (ϕ) between the voltage phasor and current phasor is lessened. When ϕ is reduced, Cosϕ is risen resulting in a higher power factor.