What Is the Fixed Asset Turnover Ratio

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The Fixed Asset Turnover Ratio and the Asset Turnover Ratio DifferenceWhile calculating the Asset Turnover Ratio we make use of the total assets, whereas in the calculation of the Fixed AssetTurnover Ratio, only fixed assets are used.The formula for the same (Fixed Asset Turnover Ratio) applies as:● Fixed Asset Turnover Ratio or FAT = the Net Sales / Average Fixed AssetsAnd the formula for the Asset Turnover Ratio is as:●Fixed asset turnover ratio = Net annual sales ÷ (Gross fixed assets – Accumulated depreciation)
What does Fixed Asset Turnover Ratio indicate?●High Fixed Asset Turnover Ratio:A High Fixed Asset Turnover Ratio indicates competence or the productivity of the business to manage the fixed assets of thebusiness. So, a high Fixed Asset Turnover Ratio is preferred by most of the business as it brings profitability to the business byproviding higher returns in the business.●Low Fixed Asset Turnover Ratio:A low Fixed Asset Turnover Ratio indicates inadequacy or wastefulness of the professional to manage the fixed assets of the business.So, a high Fixed Asset Turnover Ratio is not preferred by most of the business as it shows that the amount invested in the immovableassets of the business is more than the return they are producing. Moreover, a low or decreased ratio indicated that a company orbusiness is investing more in the fixed assets than the desired.
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What Is the Fixed Asset Turnover Ratio

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