Title: What is Fisher Effect ( Definition, formula )
1(No Transcript)
2Finance 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.
3Fixed 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
4The 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)
5What 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.
6How 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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