Fixed Asset Turnover Ratio Formula

Formula to Calculate Fixed Asset Turnover Ratio

Fixed Asset Turnover Ratio formula is used for measuring the ability of the company to generate the sales using the fixed assets investments and it is calculated by dividing the Net Sales with the Average Fixed Assets.

The fixed asset turnover ratio is a measure of the efficiency of a company and is evaluated as a return on their investment in fixed assets such as property, plant, and equipment. In other words, it assesses the ability of a company to efficiently generate net sales from its machines and equipment. The formula is represented as,

Fixed Asset Turnover Ratio = Net Sales / Average Net Fixed Assets

or

Fixed Asset Turnover = Net Sales / (Gross fixed assets – Accumulated depreciation)

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Fixed Asset Turnover Ratio Formula (wallstreetmojo.com)

Steps to Calculate Fixed Asset Turnover Ratio

The fixed asset turnover ratio calculation can be simply done by using the following steps:

  1. Firstly, note the net sales of the company, which is easily available as a line item in the income statement.

  2. Next, the average net fixed assets can be calculated from the balance sheetCalculated From The Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more by taking the average of opening and closing net fixed assets. On the other hand, gross fixed assets and accumulated depreciation can also be captured from the balance sheet to calculate the net fixed assets by deducting the accumulated depreciation from the gross fixed assets.

  3. Finally, the calculation of the fixed asset turnover ratio is done by dividing the net sales by the net fixed assets, as shown below.

Examples of Fixed Asset Turnover Ratio

Let us see some simple to advanced examples to understand it better.

You can download this Fixed Asset Turnover Ratio Formula Excel Template here – Fixed Asset Turnover Ratio Formula Excel Template

Example #1

Let us consider two independent companies X and Y, that manufactures office furniture and distribute it to the sellers as well as customers in various regions of the USA. The following information for both the companies is available:

ParticularsCompany XCompany Y
Net Sales During the Year$75,000$90,000
Opening Net Fixed Assets$22,000$26,000
Closing Net Fixed Assets$25,000$28,000

From the above table, the following can be calculated,

Based on the above information, calculate the fixed assets turnover ratio for both the companies. Also, compare and determine which company is more efficient in using its fixed assets?

As per the question,

Average net fixed asset for Company X = (Opening net fixed assets + Closing net fixed assets) /2

Fixed Asset Turnover Ratio ex 1-1

The average net fixed asset for Company Y=(Opening net fixed assets + Closing net fixed asset)/2

Fixed Asset Turnover Ratio ex 1-2

Therefore,

Fixed asset turnover ratio for Company X = Net sales / Average net fixed assets

Fixed Asset Turnover Ratio ex 1-3

So, from the above calculation, the Fixed asset turnover ratio for company X will be:

Fixed Asset Turnover Ratio ex 1-4

Fixed asset turnover ratio for Company Y = Net sales / Average net fixed assets

Fixed Asset Turnover Ratio ex 1-5

So, from the above calculation, the Fixed asset turnover ratio for company Y will be:

Fixed Asset Turnover Ratio ex 1-6

Therefore, company Y generates a sales revenue of $3.34 for each dollar invested in fixed assets as compared to company X, which generates a sales revenue of $3.19 for each dollar invested in fixed assets. Based on the above comparison, it can be said that Company Y is slightly more efficient in utilizing its fixed assets.

Example #2

Let us take the example of Apple Inc. for the fixed asset turnover ratio calculation of the fiscal year ended on September 29, 2018. As per the annual report, the following information is available:

ParticularsAmount (in Million)
Net Sales During the Year$265, 595
Gross Fixed Assets (2017)$75,076
Gross Fixed Assets (2018)$90,403
Accumulated Depreciation (2017)$41,293
Accumulated Depreciation (2018)$49,099

Based on the above information, the Fixed Assets Turnover Ratio calculation for Apple Inc.will be as follows

As per the question,

Net fixed asset for 2017 = Gross fixed assets (2017) – Accumulated depreciation (2017)

ex 2-1

Net fixed asset for 2018 = Gross fixed assets (2018) – Accumulated depreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet.read more (2018)

ex 2-2

Average net fixed asset = [Net fixed assets (2017) + Net fixed assets (2018)] /2

Fixed Asset Turnover Ratio ex 2-3

Fixed asset turnover ratio for Apple Inc. = Net sales / Average net fixed assets

Fixed Asset Turnover Ratio ex 2-4

Therefore, Apple Inc. generates a sales revenue of $7.07 for each dollar invested in fixed assets during 2018.

Fixed Asset Turnover Ratio Formula Calculator

You can use the following calculator

Net Sales
Average Net Fixed Assets
Fixed Asset Turnover Ratio Formula
 

Fixed Asset Turnover Ratio Formula =
Net Sales
=
Average Net Fixed Assets
0
= 0
0

Relevance and Uses

Recommended Articles

This has been a guide to Fixed Asset Turnover Ratio Formula. Here we discuss how to calculate the Fixed Asset Turnover Ratio step by step using practical examples and a downloadable excel template. You can learn more about financial analysis from the following articles –

Reader Interactions

Leave a Reply

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