Fixed Asset Turnover Analysis

Other Category: Accounting

July 23, 2013
Dan
analysis, fixed asset turnover analysis, fixed assets, investment, Sales, value

Fixed Asset Turnover Analysis Definition

The definition of fixed asset turnover analysis and ratio shows what portion of sales is generated from fixed asset investment. Additionally, it is most likely to be useful for a capital-intensive company. In general, the higher the value, the better the company is.

Fixed Asset Turnover Formula

Use the following formula to calculate fixed asset turnover:

Fixed asset turnover = sales ÷ fixed assets

Fixed Asset Turnover Calculation

For example, a company has $10,000 in sales and $100,000 in fixed assets. Refer to the following calculation:

Fixed asset turnover = 10,000 / 50,000 = 0.2

This means that $0.2 of sales is generated for every dollar investment in fixed asset.

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Fixed asset turnover measures how well a company is using its fixed assets to generate revenues. The higher the fixed asset turnover ratio, the more effective the company’s investments in fixed assets have become. Furthermore, a high ratio indicates that a company spent less money in fixed assets for each dollar of sales revenue. Whereas, a declining ratio indicates that a company has over-invested in fixed assets. Fixed asset turnover provides very useful information for both investors and management about whether or not a company is becoming more efficient in the use of its fixed assets by comparing its value with its historical records or industry average.
If you want to increase the value of your organization, then click here to download the Know Your Economics Worksheet.

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Resources

For statistical information about industry financial ratios, please go to the following websites: www.bizstats.com and www.valueline.com.

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