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FINANCIAL STATEMENT ANALYSIS
Fixed Assets Turnover Ratio
To measure the utilization of the firm's plant and equipment, the Fixed
Assets Turnover (Fixed Asset Utilization) Ratio can be used. It is the
firm's
S
ALES
divided by its
F
IXED
A
SSETS
.
Fixed Assets Turnover
=
(Sales) / (Net Fixed Assets)
=
($287.6) / ($133.9)
=
2.15 times
Generation of
sales by fixed
assets
This gives the analyst an idea of how well the fixed assets are being
utilized. XYZ Corporation's fixed assets are generating slightly more
than two times their value in sales for the company. Unnecessary or
underutilized fixed assets that do not increase sales cause this ratio
to become lower. Once again, consider that in a period of rapidly
changing prices, the value of fixed assets on the Balance Sheet may be
seriously understated. This causes a firm with older equipment to report
a higher turnover than a firm with more recently purchased plants and
equipment.
If the industry average for Fixed Assets Turnover is 2.98 times, a
manager of XYZ Corporation may begin to investigate how other
companies in the industry are able to generate more sales from their
fixed assets.
Total Assets Turnover Ratio
The Total Assets Turnover Ratio measures the utilization of the
company's assets. To compute the Total Assets Turnover Ratio, divide
S
ALES
by
T
OTAL
A
SSETS
. For XYZ Corporation, it is:
Total Assets Turnover = (Sales) / (Total Assets)
= ($287.6) / ($286.9)
= 1.00 times