Tag Archives | fixed assets

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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Commercial Lease

Commercial Lease Definition

A commercial lease generally speaking refers to the use of office space, warehouses, or even the land itself without the hassle of ownership. These assets are used in return for periodic payments or commercial lease payments.

Commercial Lease Explained

Commercial leases have several advantages over simply owning the fixed assets, but also have a few drawbacks. One of these commercial lease advantages is that they provide flexibility for a company to grow. Because a company is not buying up an entire amount of a fixed asset it allows that company to take on more leases and grow more quickly. Commercial lessees do not have to worry about price fluctuations because they do not own the property they are using.

A major advantage is that a company has the ability to write the periodic payments off as expenses for tax purposes. This means that a company can see major savings making the lease option lucrative to many companies.

One disadvantage is the renegotiation process. If the company has been successful, then the lessor will often drive up the price on a commercial lease. But if the company is tied down to the property, then the increased cost will become necessary driving profits down. If the company would like to move locations during the middle of the lease it is often difficult to do so without paying a very high nominal fee. Despite these disadvantages commercial leasing is often a lucrative and good business practice for many companies.

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commercial lease

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commercial lease

See Also:
How important is personal credit in negotiating a commercial loan?
Commercial Risk
Capital Lease Agreement
Lease Agreements
Operating Lease

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Accounting Asset Definition

See Also:
Generally Accepted Accounting Principles
Financial Accounting Standards Board
International Financial Reporting Standards
Depreciation
Financial Assets

Accounting Asset Definition

In accounting, an asset has two criteria: a company must own or control it, and it must be expected to generate future benefit for that company.

Assets on Balance Sheet

A company records the value of its assets on the balance sheet. Assets can be classified as current assets or as non-current assets.

Expect to use up or convert current assets, such as accounts receivable and inventory, to cash within one year or one operating cycle.

Non-current assets, also called fixed assets, such as plants and equipment, have useful lives longer than one year or one operating cycle.

Tangible – Intangible

Categorize assets as tangible or intangible. Report both types on the balance sheet.

Tangible assets are physical assets, such as land, machinery, and inventory. Depreciate the value of these assets over their useful lives.

Intangible assets are nonphysical assets, such as brand name, intellectual property, and goodwill. Certain intangible assets, such as goodwill, are amortized over their lifespan. Intangible assets can be either definite or indefinite. Definite intangible assets have a limited lifespan. Indefinite intangible assets exist as long as the company that owns them is a going concern.


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accounting asset definition

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