![]() ![]() The usefulness of this ratio can be increased by comparing it with the ratio of other companies, industry standards and past years’ ratio. Generally, a high fixed assets turnover ratio indicates better utilization of fixed assets and a low ratio means inefficient or under-utilization of fixed assets. Company Y’s management is, therefore, more efficient than company X’s management in using its fixed assets. Generally speaking the comparability of ratios is more useful when the companies in question operate in the same industry.Ĭompany Y generates a sales revenue of $4.53 for each dollar invested in its fixed assets whereas company X generates a sales revenue of $3.16 for each dollar invested in fixed assets. The ratio of company X can be compared with that of company Y because both the companies belong to same industry. Capital Employed 12,00,000 Net Fixed Assets 8,00,000 Cost of Goods Sold or Cost of Revenue from Operations 40,00,000 Gross Profit is 20 on Cost. Calculation of fixed assets turnover ratio: Calculate Working Capital Turnover Ratio Q. Can we compare the ratio of company X with that of Company Y? If yes, which company is more efficient in using its fixed assets?.Calculate fixed assets turnover ratio for both the companies.The selected data for both the companies is give below: X and Y are two independent companies that manufacture office furniture and distribute it to the resellers as well as customers in various regions of USA. Let’s first illustrate the computation of fixed assets turnover ratio through an example and then go for ratio’s significance and interpretation section. It is used to assess managements capacity to produce revenue from fixed assets. Fixed Asset Turnover is a ratio that compares the value of a companys sales revenue to the value of its assets. In such case, closing balance of fixed assets may be used as the denominator of the formula, because the computation of average fixed assets would not be possible. What is Fixed Asset Turnover Ratio Updated on Decem, 713 views. In most cases, a high asset turnover ratio is considered good, since it implies that receivables are collected quickly, fixed assets are. The concept is useful for determining the efficiency with which a business utilizes its assets. Note for students: Sometime opening balance of fixed assets may not be given in the question. A turnover ratio represents the amount of assets or liabilities that a company replaces in relation to its sales. It is computed by dividing net sales by average fixed assets. The formula for the asset turnover ratio is as follows: Where: Net sales are the amount of revenue generated after deducting sales returns, sales discounts, and sales allowances. Fixed assets turnover ratio (also known as sales to fixed assets ratio) is a commonly used activity ratio that measures the efficiency with which a company uses its fixed or noncurrent assets to generate its sales revenue.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |