Fixed Asset Turnover Ratio – Finance | Management Notes
Fixed Asset Turnover Ratio – Finance |Asset Turnover Ratio | Finance | Management Notes
What does Fixed Asset Turnover mean?
The fixed asset turnover ratio (FATR)compares net sales to net fixed assets. It is used because to evaluate the ability of management to generate sales from its investment in fixed assets.
Why is fixed asset turnover ratio important?
The FATR is an efficiency ratio that measures a company’s effectiveness in generating a return on its investment in property, plant, and equipment by comparing net sales with fixed assets.
Likewise, it calculates how efficiently a company is producing sales with its machines and equipment. First of all it can be calculated by :
What is the formula for the fixed asset turnover ratio?
FATR formula =Net sales/Average fixed assets
where:
Net sales=gross sales, less returns and allowances
Average fixed assets=1/2(net fixed assets’ beginning balance−ending balance)
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