Financial Analysis: Fixed Asset Turnover Ratio Example

The fixed asset turnover ratio measures how efficiently a company uses its fixed assets to generate sales revenue. It is a variant of total asset turnover and tends to be more important in industries that are heavily automated. Fixed asset turnover is a measure of efficiency. The formula is net sales revenue divided by average fixed assets. Average fixed assets is calculated by taking beginning fixed assets plus ending fixed assets and dividing by two. Sometimes you might see a question where only ending Fixed Assets are given. In that case, just use that number but realize that in the real world, we’d be able to find two years’ worth of data. This is one of the ratios where the higher the number the better. Here is the Income Statement of a sample company. We’ll use the highlighted sales revenue to determine fixed asset turnover. Here is the asset section of a Balance Sheet. We’ll use the highlighted fixed assets amounts, which are totaled on the slide, to determine the fixed asset turnover. For 2016, net sales divided by average fixed assets gives us fixed asset turnover of $37.23.

This means that for every one dollar invested in fixed assets, the company is generating over $37 of sales revenue. It’s likely that fixed assets aren’t a significant driving of revenues for this company to have such a large number. Service firms like law firms and accounting firms tend to have very high fixed asset turnover ratios..

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