Fixed Asset Turnover

Fixed Asset Turnover is similar to Total Asset Turnover;  both measure a company's effectiveness in generating revenue from investments. But, Fixed Asset Turnover ratio evaluates only investments in plant, property, and equipment.

Fixed Asset Turnover

Fixed Asset Turnover is similar to Total Asset Turnover;  both measure a company's effectiveness in generating Net Sales revenue from investments back into the company. However, the Fixed Asset Turnover ratio evaluates only the investments in plant, property, and equipment.

Manufacturing and other industries requiring major-investments will often spend heavily on properties, manufacturing plants, and equipment to push themselves ahead of the competition.  It is especially important to calculate the Fixed Asset Turnover ratio for such companies.

 


Fixed Asset Turnover Formula

Interpretation of Fixed Asset Turnover

The higher the Fixed Asset Turnover ratio, the more effective the company's investments in  properties, manufacturing plants, and equipment have become. A search for the explanation in the financial statements may be required to find out what investments were made, as large capital investment purchases may not immediately yield higher sales.



It may take one or more years to fully utilize these large investments. If the company invested in major improvements heavily one year, then it would be wise to watch the Fixed Asset Turnover closely over the next few years to gauge how well those investments actually helped the company.


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