Fixed Asset Turnover

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Fixed asset turnover ratio compares the sales revenue a company to its fixed assets. This ratio tells us how effectively and efficiently a company is using its fixed assets to generate revenues. This ratio indicates the productivity of fixed assets in generating revenues. If a company has a high fixed asset turnover ratio, it shows that the company is efficient at managing its fixed assets. Fixed assets are important because they usually represent the largest component of total assets.

There is no standard guideline about the best level of asset turnover ratio. Therefore, it is important to compare the asset turnover ratio over the years for the same company. This comparison will tell whether the company’s performance is improving or deteriorating over the years. It is also important to compare the asset turnover ratio of other companies in the same industry. This comparison will indicate whether the company is performing better or worse than others.

An increasing trend in fixed assets turnover ratio is desirable because it means that the company has less money tied up in fixed assets for each unit of sales. A declining trend in fixed asset turnover may mean that the company is over investing in the property, plant and equipment.

This ratio is usually used in capital-intensive industries where major purchases are for fixed assets. This ratio should be used in subsequent years to see how effective the investment in fixed assets has been.

Calculation (formula)

The formula for calculation of fixed asset turnover ratio is given below

Fixed Asset Turnover Ratio = Sales Revenue / Total Fixed Assets

The fixed assets usually include property, plant and equipment. The value of goodwill, long-term deferred tax and other fixed assets that do not belong to property, plant and equipment is usually subtracted from the total fixed assets to present a more meaningful fixed asset turnover ratio. 

Quote Weenoka, 8 November, 2011
Question: If there is no total revenue for the year in question but there is an operating revenue, should you use the operating revenue instead.

Business Student at Rasmussen College in Brooklyn Park, MN
Quote Vit. A., 8 November, 2011
Weenoka wrote:
Question: If there is no total revenue for the year in question but there is an operating revenue, should you use the operating revenue instead.

You can use any available revenue. In your case Sales Revenue will be Operating Revenue.
Quote Jaanson, 28 January, 2014
So it basically describes the productivity of a company's physical capital.
Quote Guest, 14 December, 2015
what happens when there is an increase in asset turn over ratio but the sales and net asset has declined what does that mean . Is it bad or good ?
Quote Guest, 14 December, 2015
does it mean that as if the current liability has increased  the revenue has fall off ?
Quote Guest, 22 February, 2016
What about Problems with High Fixed-Asset Ratios ?
some case it's not good for business ?
Quote Guest, 3 June, 2016
what is the ideal fixed assets ratio?
Quote Guest, 16 May, 2021
Do you include right-of-use assets in the calculation? Why or why not?

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