Professor Adams' Lecture Materials

LO10-05: Calculate the fixed asset-turnover ratio used by analysts to measure how effectively managers use property, plant, and equipment.

Fixed asset turnover ratio

Stock analysts often use a ratio called the fixed asset turnover ratio to measure how effectively a company's managers (e.g., CEO and CFO) are using amounts invested in fixed assets. The ratio is calculated as follows.

Note: The denominator is usually average net PP&E (i.e., cost less accumulated depreciation) and the average is calculated by adding the net PP&E balance at the beginning and end of the year and dividing by 2.

Interpretation of the ratio

The ratio tells the amount of sales generated by the funds invested by managers in fixed assets.

Page updated

Google Sites

Report abuse