Fixed asset turnover ratio | Finance

Fixed asset turnover ratio (FATR)

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. The FATR is an efficiency ratio that measures companies return on their 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 :

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)