myz-vgb.ru A Business Encyclopedia

Fixed Assets Turnover Ratio

Definition: The Fixed Assets Turnover Ratio shows, how efficiently the fixed assets are used to generate sales. Simply, this ratio shows the efficiency of a firm in generating profits relative to the investments in the fixed assets.

The fixed assets turnover ratio is suitable for the heavy industries where huge capital is employed in the investments such as manufacturing. Thus, the ratio should be compared with the companies within the specific industries.

Also, the companies should keep in mind; that accelerated depreciation can inflate the value of the ratio, due to the reduced value of the denominator. To overcome this problem, the company should reinvest in other investments to compensate the older assets.

The formula to compute this ratio is:

Fixed Assets Turnover Ratio = Net Sales/ Gross Fixed Assets – Accumulated Depreciation

Higher the ratio, the better is the utilization of fixed assets. This means a firm is able to generate sales with the limited amount of fixed assets without raising any additional capital.

Example: Suppose a firm has a gross fixed assets worth Rs 10,00,000 with the accumulated depreciation of Rs 2,00,000. The sales for the year is Rs 12,00,000. Then the Fixed Assets Turnover Ratio will be:

Fixed Assets Turnover Ratio = 12,00,000/ (10,00,000 – 2,00,000) = 1.5 times

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares

Related pages


consumer equilibrium marginal utilitycorporate restructuring examplestraining and retraining of employeesmeaning of turnover ratioadvantages and disadvantages of human resource planningimportance of hrp in an organizationinelastic demand productsdefinition of teleologicalstaggered meaningdemand forecasting statistical methodswhat is crosswise communicationdefine exit interviewhenry fayol principles of management with examplescultural factors affecting consumer behaviourstock market speculation definitionexamples of prestige pricingthe new managerial gridturnover accounting formulautility indifference curveneoclassical managementadministrative principles henri fayolwhistle blow definitiondeontological ethical theory definitionspeculative motiveansoff marketing strategydemocratic participative leadership stylecorporate restructuring examplesquota sampling in statisticsadvantages and disadvantages of working capitalmeaning of adjourningdefinition for guerrilla warfareltf financejahari windowselling cost under monopolistic competitionexplain elasticity in economicsneft stands forproperties indifference curvedelegations definitiondefine laissez faireauthorised capital meaningpricing methods and strategiescost inflation definitionmodigliani miller theoryethical theories definitioncalcium sandoz kidsjohati windowfactors affecting buying behaviourdefinition of industrial conflictpert planningansoff productdifferential defmax weber bureaucratic organizationindifference curve approachgordon dividend modelics inventory control systemsbu marketingmarginal utility of money remains constantmeaning of business process reengineeringmeaning of marginal costingcash reserved ratiomajor ethical theoriesdefine skimming pricingoligopoly market definitionneoclassical organization theorywhat is intrapreneurship and entrepreneurshipconsumer affluencerecruitments definitioninstinctual definitiondef loansegmented meaningassets turnover formulaweber bureaucracyfixed asset turn over ratio