See Also:
Sensitivity Analysis Valuation
Working Capital Analysis
Return on Asset Analysis
Standard Chart of Accounts
SWOT AnalysisFixed Asset Turnover Analysis
Fixed Asset Turnover DefinitionFixed asset turnover ratio shows what portion of sales is generated from
fixed asset investment. 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 FormulaFixed asset turnover = sales รท fixed
assets Fixed Asset Turnover CalculationExample: 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.
ApplicationsFixed 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. A high ratio indicates that a company spent less money in fixed assets for each dollar of sales revenue. 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.
ResourcesFor statistical information about industry financial ratios, please go to the following websites:
www.bizstats.com and
www.valueline.com.