AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |
Back to Blog
The formula for the ratio is to subtract accumulated depreciation from gross fixed assets, and divide that amount into net annual sales. How to Calculate the Fixed Asset Turnover Ratio A corporate insider has access to more detailed information about the usage of specific fixed assets, and so would be less inclined to employ this ratio. The concept of the fixed asset turnover ratio is most useful to an outside observer, who wants to know how well a business is employing its assets to generate sales. The Interpretation of Financial Statements Another possibility is that management has invested in areas that do not increase the capacity of the bottleneck operation, resulting in no additional throughput. ![]() Alternatively, it may have made a large investment in fixed assets, with a time delay before the new assets start to generate sales. A low ratio may also indicate that a business needs to issue new products to revive its sales. In addition, it may be outsourcing work to avoid investing in fixed assets, or selling off excess fixed asset capacity.Ī low fixed asset turnover ratio indicates that a business is over-invested in fixed assets. A high ratio indicates that a business is doing an effective job of generating sales with a relatively small amount of fixed assets. ![]() ![]() It is used to evaluate the ability of management to generate sales from its investment in fixed assets. The fixed asset turnover ratio compares net sales to net fixed assets.
0 Comments
Read More
Leave a Reply. |