What is the fixed asset turnover ratio and how is it calculated?
What is the fixed asset turnover ratio and how is it calculated?Answer: The fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. It is especially important for a manufacturing firm that uses a lot of plant and equipment in its operations to calculate its fixed asset turnover ratio. Here is how the fixed asset turnover ratio is calculated: Net Sales/Plant and Equipment = X Times Interpretation: If the fixed asset turnover ratio is low as compared to the industry or past years of data for the firm, it means that sales are low or the investment in plant and equipment is too much. This may not be a serious problem if the company has just made an investment in fixed asset to modernize, for example.
