Definition of Fixed Asset Turnover Ratio
The fixed asset turnover ratio shows the relationship between a company’s annual net sales and the net amount of its fixed assets.
The net amount of fixed assets is the amount reported on the company’s balance sheet as property, plant and equipment (PPE) after deducting accumulated depreciation. Since net sales occurred throughout the year, you should divide the net sales by the average amount of net PPE during the year of the net sales.
Example of Fixed Asset Turnover Ratio
Assume that during its recent year a corporation had net sales of $18 million. Its average amount of net property, plant and equipment (after deducting accumulated depreciation) was $6 million.
Based on the information given, the corporation’s fixed asset turnover was 3 times ($18 million of net sales divided by $6 million of average net property, plant and equipment).
