A fixed Assets Turnover Ratio (FATR) is the ratio of the activity (the ratio of efficiency) that measures how effectively and efficiently a company uses its assets or assets to generate revenue.
This ratio indicates the productivity of fixed assets in generating revenue. The company has a Turnover ratio of fixed assets or fixed assets are high indicates that the company is able to manage its fixed assets efficiently and effectively. Fixed assets are very important. To taken into account because these fixed assets are the largest component of the total assets of the company.
Basically, there are no standard guidelines about the level of Turnover Ratio fixed assets or Fixed Assets Turnover Ratio is the best. Therefore, the required comparison this ratio for the same company from previous years. To see if the company's performance is improving or deteriorating over time. We can also compare this with fixed assets Turnover moving companies in the same field. So that we know whether these companies have better performance or worse than other companies.
Investors and Creditors use this formula to understand how well companies utilize equipment and their machines are classify in Fixed Assets is to generate revenue or sales. This ratio is important for investors to measure their return on investment. Especially in the manufacturing industries that require the purchase of equipment or machinery production of large and expensive. As for the lender, the lender wants to make sure that the company can generate enough revenue from new equipment or machines that he bought to pay back their loans.
How to Calculate Turnover Ratio Fixed Assets
Here is how to calculate Turnover Ratio fixed assets or Fixed Assets Turnover Ratio which consists of formulas and examples in the case.
Fixed Assets Turnover Ratio Formula
Fixed assets is the property of the company are relatively high-value and can be use for more than 1 year (lasting) in the operational activities of the company. In the statement of financial accounting standards. That "fixed assets intangible assets which are using them more than one period (one year) and owned by the company for use in the production process or the provision of goods and services. To be leased to another party or administrative purposes". The fixed assets this may include land, buildings, machinery, equipment and vehicles.
Fixed assets Turnover ratio or Fixed Assets Turnover Ratio is calculated by dividing net sales by the number of fixed assets or fixed assets.
Fixed Assets Turnover Ratio = Net Sales/Fixed Assets
Example Case Calculation of Fixed Assets Turnover Ratio
A company engaged in the Manufacturing of food cans would like to apply for borrowing money from the Bank. In the year 2017, the company had net sales of $. 200 million with the number of fixed assets owns $ 150 million. What is the Ratio of rotation of the fixed assets of the company?
Note:
= Net sales of $200 million,-
the amount of fixed assets =$ 150 million,-
fixed assets Turnover Ratio =?
Fixed assets Turnover ratio = net sales/fixed assets
Ratio = fixed assets Turnover 200 million/150 million
fixed assets Turnover Ratio = 1.33
So Turnover Ratio fixed assets or Fixed Assets Turnover Ratio is 1.33 times.
Valuation of Fixed Assets Turnover Ratio (Fixed Assets Turnover Ratio)
Fixed asset turnover is high indicating that fixed assets are use efficiently and amount of sales generate using only a small amount of assets. In contrast, the ratio of fixed assets to the low turnover indicates. The company does not use its assets efficiently and effectively.
A low ratio can also be cause by several factors, such as excess production but there is no demand for the products. That it manufactures or uses a machine to produce too many products. It could also be due to the existence of barriers to the supply chain. So that the amount of product produced did not match expectations.
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