Calculate the efficiency of your company's fixed assets in generating sales revenue.
The Fixed Assets Turnover Ratio measures how efficiently a business uses its fixed assets to generate sales. It reflects the company's ability to turn its investments in fixed assets, such as buildings, machinery, and equipment, into revenue. A higher ratio indicates better utilization of assets.
The formula for calculating the Fixed Assets Turnover Ratio is:
Fixed Assets Turnover Ratio = Net Sales / Average Fixed Assets
This formula divides the company's net sales by its average fixed assets to show how effectively assets are being used.
Suppose a company has net sales of $1,000,000 and average fixed assets valued at $500,000. Using the formula:
Fixed Assets Turnover Ratio = $1,000,000 / $500,000 = 2
This ratio of 2 means that for every dollar invested in fixed assets, the company generates $2 in sales revenue, indicating efficient use of assets.