Fixed Assets Turnover Ratio Example

Definition: Fixed Assets Turnover Ratio (FATR) is used to measure how efficiently fixed assets are utilized to generate sales revenue. It is also known as sales to fixed assets ratio. A lower ratio indicates under-utilization of fixed assets.

Formula:
Fixed Assets Turnover Ratio = Sales / Net Fixed Assets

Example 1:
PCK Company has total fixed assets of $25 million at cost and an average accumulated depreciation of $3 million. If its net sales were $88 million, then:
  Average net fixed assets = 25 million - 3 million = $22 million
  FATR = 88 million / 22 million = 4

Example 2:
Calculate FATR with the following data:
Total sales $700,000
Sales returns $40,000
Buildings $280,000
Accumulated depreciation - Buildings $10,000
Motor vehicles $27,000
Accumulated depreciation - Motor vehicles $2,000
Equipment $31,000
Accumulated depreciation - Equipment $1,000
Furniture $6,200
Accumulated depreciation - Furniture $1,200
Bank $69,500
Debtors $47,000
Stocks $22,000

Solution:
Net Sales = 700,000 - 40,000 = $660,000
Net Fixed Assets = (280,000 - 10,000) + (27,000 - 2,000) + (31,000 - 1,000) + (6,200 - 1,200) = $330,000

FATR = 660,000 / 330,000 = 2

* Next: Working Capital Turnover Ratio Analysis