The fixed asset turnover ratio is a metric that measures how effectively a company generates sales using their fixed assets. There’s no ideal ratio that’s considered a benchmark for all industries. Instead, investors should compare a company’s fixed asset turnover ratio to other companies in the same sector. If a company has a higher fixed asset turnover ratio than its competitors, it shows the company is using its fixed assets to generate sales better than its competitors.
The fixed asset turnover ratio is calculated by dividing a company’s net sales by its net property, plant, and equipment. For example, suppose an investor is comparing the fixed asset turnover ratios of companies in the manufacturing sector.
The investor is comparing companies AA, BB, and CC.
- Company AA had $2 million in net sales and net fixed assets of $500,000 for the year.
- Company BB had $1 million in net sales and net…