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Fixed Asset Turnover

 

Fixed asset turnover ratio is a financial ratio that measures how much of sales are created by company’s property, plant and equipment. The ‘higher asset turnover’ is the better, because it means that more sales are created with fewer assets. And less assets means that company needs less investments in capital. Of course, the meaning of this ratio is very different for different industries and must be compared to identical companies only. 

 

Fixed asset turnover ratio formula


Fixed asset turnover ratio = Sales / Fixed assets

 

* Fixed assets usually are provided in the balance sheet of the company under the name ‘fixed assets’, 'tangible assets’, ‘property, plant and equipment’ or just ‘PP&E’. 

 

Fixed asset turnover ratio is quiet known, but not really very significant in practice. Sales mean not much in the real world because everything depends on the profitability. Better ratios to measure asset efficiency might be return on asset (ROA) or return on invested capital (ROIC).

 

Another similar ratio is ‘total asset turnover ratio’ or 'asset turnover ratio' which takes into consideration all assets instead of only fixed assets. 

 






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