What Is the Fixed Asset Turnover Ratio? (1)

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Finance N Insurance
What Is the Fixed Asset Turnover Ratio
The fixed asset turnover ratio is basically a
measuring tool used by the companies to analyze
or judge that how well the companys assets are
functioning to produce or bring in the revenue or
sales for the company. Moreover, the Investors
and creditors also use the Fixed Asset Turnover
Ratio to know the sales of the company. Investors
measure the return on their investments which are
invested in the company, whereas the creditors
make sure that the company is in a position to
pay off its debts.
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Fixed Asset Turnover Ratio Formula

• The formula used for calculating the Fixed Asset
  Turnover Ratio is stated as follows
• ? Fixed Asset Turnover Ratio or FAT Net Sales /
  Average Fixed Assets
• ?Where in the above FAT formula
• the Net Sales Gross sales returns, and the
  allowances
• the Average Fixed Assets NABB - Ending Balance
  / 2
• ?the NABB the Net fixed assets commencement
  balance?
• And the net fixed assets formula ((Total of the
  Fixed Assets Total of the Current Assets)
  (Total of the Current Liabilities Total of the
  Extended Period Liabilities))
• The higher fixed asset turnover ratio shows that
  the company is using its assets in the desired
  and utmost way in order to generate sales for the
  company

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The Fixed Asset Turnover Ratio and the Asset
Turnover Ratio Difference

• While calculating the Asset Turnover Ratio we
  make use of the total assets, whereas in the
  calculation of the Fixed Asset Turnover 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 Assets
• And the formula for the Asset Turnover Ratio is
  as
• Fixed asset turnover ratio Net annual sales
  (Gross fixed assets Accumulated depreciation)

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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 the business. So, a
  high Fixed Asset Turnover Ratio is preferred by
  most of the business as it brings profitability
  to the business by providing 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 immovable assets of the
  business is more than the return they are
  producing. Moreover, a low or decreased ratio
  indicated that a company or business is investing
  more in the fixed assets than the desired.

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How can you Improve the Fixed Asset Turnover
Ratio?

• There exist certain ways in which you can improve
  your Fixed asset turnover ratio some of which are
  as follows
• Revenue to be increased you need to focus on the
  revenue of the company or the business in order
  to attain profits, which will eventually increase
  the Fixed asset turnover ratio.
• Discharge the non-usable assets the old, as well
  as the non-usable assets, should be discharged
  off from the company as they will hamper the
  production of the business and eventually bring
  impact on the sales of the company.
• Lease the assets You can also give your assets
  on lease which will bring revenue to the company
  or the business.
• Improve your inventory management you need to
  keep a track of all your inventory and make sure
  that the working of inventory is working at its
  pace, as it hampers the sales of the product to
  the ultimate consumer.

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• Thank you for Reading