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.
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.
Fixed Asset Turnover Analysis
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.