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How to Calculate Fixed Asset Turnover Ratio using Calculator?
We have two variations of the Calculator:
You can also calculate by putting a value of net revenue, opening and closing net fixed assets in the following calculator. In this calculator, the Average of Net Fixed Asset is worked out by averaging the opening and closing of the net fixed assets.
In the following calculator, the user calculates and updates the average net fixed assets in the calculator. The user may calculate daily, weekly, fortnightly, monthly or yearly average of the net fixed assets.
What is Fixed Asset Turnover Ratio?
Fixed asset turnover ratio is the activity ratio, which measures the productivity of the company’s fixed assets to generate revenue. This ratio is mostly used by manufacturing companies because its most of the fixed assets are occupied in manufacturing activity. It provides very useful information to both investors and management about whether or not a company is becoming more efficient in the use of its fixed assets by comparing its value with its historical records or industry average.
Fixed Asset Turnover Ratio Formula
Following is the formula to calculate the fixed asset turnover ratio.
|Fixed Asset Turnover Ratio||=||———————————-|
|Average Net Fixed Assets|
Financial analysts determine the net revenue after netting returns, taxes, etc. Normally the figure is available in the annual report.
Average Net Fixed Assets
Net Fixed Assets = Gross Fixed Asset – Accumulated Depreciation
|Opening Net Fixed Assets+Closing Net Fixed Assets|
|Average Net Fixed Assets||=||—————————————————————-|
|Net Fixed Assets|
Fixed asset turnover ratio measures the efficiency of the company in utilizing fixed assets to generate revenue.
If the ratio is high, it indicates that the company is utilizing its fixed assets efficiently.
If the fixed assets turnover ratio is too high, it may indicate that the company is not investing in more fixed assets to generate revenue. In other words, there may be an opportunity to expand with more fixed asset and the company is ignoring it.
If the ratio is too low, it indicates that the company is investing more in fixed assets to generate revenue but not utilizing it efficiently. It is a situation worth concern of the top management. If the management does not address it, the company may enter into losses due to heavy depreciation cost.
Higher or lower turnover ratio also depends on other factors like nature of the product, sales, and purchase of the fixed assets, sales, the age of fixed assets, reinvestment of fixed assets, etc. Any decision based on the analysis should also take these factors into consideration.