Financial modelling terms explained

# Fixed Asset Turnover

Fixed asset turnover is a calculation used to show how effectively a company uses its fixed assets to generate revenue. It is calculated by dividing the net sales by the average total assets.

## What Is Fixed Asset Turnover?

Fixed asset turnover is a measure of how efficiently a company is using its fixed assets to generate sales. It is calculated by dividing sales by average fixed assets. A high fixed asset turnover indicates that a company is using its fixed assets to generate a large amount of sales, while a low fixed asset turnover indicates that a company is not using its fixed assets to generate sales. Fixed asset turnover can be used to assess a company's efficiency and to compare the performance of different companies.

## How Do You Calculate Fixed Asset Turnover?

The fixed asset turnover ratio is a measure of how efficiently a company is using its fixed assets to generate sales. It is calculated by dividing net sales by average fixed assets.

A high fixed asset turnover ratio means that the company is using its fixed assets to generate a lot of sales, and a low fixed asset turnover ratio means that the company is not using its fixed assets very efficiently.

There are a few things to keep in mind when calculating the fixed asset turnover ratio. First, the net sales figure should be net of any returns, discounts, or allowances. Second, the average fixed assets figure should be calculated by taking the total fixed assets figure and dividing it by the number of months in the period.

For example, if a company had net sales of \$100,000 and average fixed assets of \$10,000, its fixed asset turnover ratio would be 10 (100,000/10,000).

## Why Is It Important to Know Your Fixed Asset Turnover?

Fixed asset turnover is important because it measures how efficiently a company is using its fixed assets to generate sales. A high fixed asset turnover ratio means that the company is generating a lot of sales relative to its fixed assets. This is a good indication that the company is using its assets efficiently and is generating a lot of revenue from its investments in fixed assets. A low fixed asset turnover ratio, on the other hand, may indicate that the company is not using its assets efficiently and could be a sign that the company should consider investing in more assets to generate more sales.

## What's the Difference Between Fixed Asset Turnover and Asset Turnover?

Fixed asset turnover is a measure of how efficiently a company is using its fixed assets to generate sales. Asset turnover is a measure of how efficiently a company is using its total assets to generate sales.

## What is An Example of Fixed Asset Turnover?

An example of fixed asset turnover is when a company sells its fixed assets over the course of a year and makes a profit on the sale. The company then takes that profit and divides it by the total cost of the fixed assets that were sold to get the fixed asset turnover ratio. This ratio measures how efficiently a company is using its fixed assets to generate sales and profits.

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