Fixed Asset Turnover Analysis

See Also:
Sensitivity Analysis Valuation
Working Capital Analysis
Return on Asset Analysis
Standard Chart of Accounts
SWOT Analysis
(ROE) Return on Equity

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 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.

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fixed asset turnover analysis

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fixed asset turnover analysis

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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3 Responses to Fixed Asset Turnover Analysis

  1. Kuzya June 29, 2016 at 7:54 am #

    Why divided by 50,000 not 100, 000???

  2. Ryry April 6, 2017 at 8:45 pm #

    It looksl like a mistake on the example calculation. It should have been 100,000.

  3. Finding online May 12, 2018 at 9:01 am #

    Thhis site definitely has all of the information I needed concerning this subject and didn?t know
    who to ask.

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