Question

Property and equipment, net(current year) $     189,992 Property and equipment, net(prior year)         198,957 Subtotal $    ...

Property and equipment, net(current year)

 $     189,992
Property and equipment, net(prior year)         198,957
Subtotal $     388,949
Divided by 2 / 2
Average NBV of fixed assets $     194,475
Total revenues $   1,132,087
Divided by average NBV of fixed assets

Fixed asset turnover ratio

How do you calculate Fixed asset turnover ration?
Business   Accounting   
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Answer #1

Fixed Asset turnover ratio is calculated using the formulae as Net sales divided by Net Property, Plant & Equipment. This ratio measures how effectively a company is utilizing its investment in fixed assets to generate revenue. There is no good or bad ratio parameter, it strictly depends on Industry to Industry for which Consulting Companies like Mckinsey, EY, BCG etc. usually publishes their report analyzing different players in an industry.

In the question above,

Net Sales = $1,132,087 (Assuming total revenue as net sales)

Average NBV of assets = $194,475

Fixed Asset turnover ratio = $1,132,087 / $194,475 = 5.82

Answer is 5.82 which means that Company generates 5.82 times sales of its fixed asset investment. Bank will compare this ratio with different players in same industry to reach on if it holds good or bad.

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