Fixed-Asset Turnover Ratio

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DEFINITION of 'Fixed-Asset Turnover Ratio'

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.

The fixed-asset turnover ratio is calculated as:

Fixed-Asset Turnover Ratio

BREAKING DOWN 'Fixed-Asset Turnover Ratio'

This ratio is often used as a measure in manufacturing industries, where major purchases are made for PP&E to help increase output. When companies make these large purchases, prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was.

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RELATED FAQS
  1. Which financial ratios are considered to be efficiency ratios?

    Efficiency ratios generally measure a company's ability to use its assets and liabilities to generate revenues or profits. ... Read Full Answer >>
  2. What is considered to be a good fixed asset turnover ratio?

    The fixed asset turnover ratio is a metric that measures sales to the value of fixed assets. It measures how well a company ... Read Full Answer >>
  3. When is it useful to look at a company's fixed asset turnover ratio?

    It is useful to look at a company's fixed asset turnover ratio when an outside observer, such as an investor, wants to know ... Read Full Answer >>
  4. Why are efficiency ratios important to investors?

    When analyzing a company's potential for investment, it is important to examine its financial performance from every angle. ... Read Full Answer >>
  5. What are pro forma earnings?

    Great question, but it is not easily answered, because pro forma earnings figures are inherently different for different ... Read Full Answer >>
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