The fixed asset turnover ratio compares net sales to net fixed assets. It is used to evaluate the ability of management to generate sales from its investment in fixed assets. The fixed asset turnover ratio is an efficiency ratio that measures companies return on their investment in property, plant, and equipment by comparing net sales with fixed assets.
In other words, it calculates how efficiently a company is producing sales with its machines and equipment. It can be calculated by :
Fixed asset turnover ratio formula =Net sales/Average fixed assets
Net sales=gross sales, less returns and allowances
Average fixed assets=1/2(net fixed assets’ beginning balance−ending balance)