Asked by: Jakelin Vercoulenbusiness and finance debt factoring and invoice discounting
Why is fixed asset turnover ratio important?
Last Updated: 21st May, 2020
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Then, what does the fixed asset turnover ratio tell us?
Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets.
Also Know, do you want a high or low fixed asset turnover? It is calculated by dividing net sales by the net of its property, plant, and equipment. A high ratio indicates that a company efficiently uses its fixed assets to generate sales, whereas a low ratio indicates that the firm does not efficiently use its fixed assets to generate sales.
Consequently, why is asset turnover important?
The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using its assets to generate revenue. The higher the asset turnover ratio, the more efficient a company.
What does a low fixed asset turnover mean?
A low fixed asset turnover means that annual sales are low relative to fixed assets (property, plant and equipment). It could mean that a company is having trouble selling its product, or that it has excess assets. But it can also be low for reasons of business strategy. It can't be evaluated in isolation.