Investors care about this ratio because it can give them a rough idea of their ROI. Creditors are concerned with the ratio because it tells them whether a new piece of equipment will generate enough money to repay the loan used to acquire it. The fixed asset turnover ratio compares net sales to fixed assets to determine how efficiently a company is generating sales with its machinery and equipment.Ĭreditors and investors both rely on this method to determine how successfully a firm has used its equipment to produce revenue.
When combined with other research, the fixed asset turnover ratio helps provide a thorough picture of a company's performance and asset management. Often, the information they need to apply the formula is publicly available. It measures a business’s return on their investment in property, plant and equipment by comparing net sales with fixed assets.Īsset utilization ratios are frequently used by lenders and investors to gauge how well a business is doing compared to its counterparts. The fixed asset turnover ratio is an efficiency ratio. One measure businesses use to assess performance in this regard is the fixed asset turnover ratio, particularly businesses in capital-intensive industries such as manufacturing, where large and expensive machines are common. Every dollar invested in your business should create revenue or help boost profit.
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