Fixed asset turnover ratio is an activity ratio. It tells about us the performance of the company regarding its utilization of fixed assets to generate revenue.
Fixed asset turnover formula
It is calculated by dividing net revenue by the average fixed assets.
Fixed asset turnover = Net revenue / average fixed assets
A higher ratio is considered as the good one because company is using its fixed assets to generate more sales. Usually, this ratio is compared with the industry standard to understand the strength or weakness.
Example
Following information are available for Alpha Plc:
Property $50,000,000
Computers $1,000,000
Furniture $500,000
Office equipment $400,000
Net revenue for the year $36,000,000.
Required: Calculate Fixed asset turnover ratio.
Solution
Fixed assets = Property + Computers + Furniture + Office equipment = 50,000,000 + 1,000,000 + 500,000 + 400,000 = $51,900,000
Fixed asset turnover ratio = Fixed assets / net revenue = 51,900,000 / 36,000,000 = 1.44
