Question

Kim Company has the following summary financial information:
				2013	2014	2015	2016
	Sales			$ 55,000	$ 65,000	$ 75,000	$ 85,009
	Property, Plant, & Equipment			$    5,000	$    5,500	$    6,000	$    6,500
	a.	Calculate Kim's fixed assets turnover ratio for 2014 through 2016
					12.38	13.04	13.60
	b.	Ivan Inc had fixed assets turnover for 2016 of 13.00. Did Kim or Ivan have better
		performance?		higher is more efficient | $sales per $1 fixed asset

Answer 1

Answer to Part a.

Fixed Assets Turnover = Sales / Average Fixed Assets

2014:
Average Fixed Assets = ($5,000 + $5,500) / 2 = $5,250
Fixed Assets Turnover = 65,000 / 5,250
Fixed Assets Turnover = 12.38

2015:
Average Fixed Assets = ($5,500 + $6,000) / 2 = $5,750
Fixed Assets Turnover = 75,000 / 5,750
Fixed Assets Turnover = 13.04

2016:
Average Fixed Assets = ($6,000 + $6,500) / 2 = $6,250
Fixed Assets Turnover = 85,009 / 6,250
Fixed Assets Turnover = 13.60

Answer to Part b.
Kim Company has performed better as compared to Ivan Inc as it has higher Fixed Assets Turnover. Higher Fixed Assets turnover indicates that Kim Company has efficiently used it fixed assets to generate sales.