Fixed-Asset Turnover

Fixed-asset turnover is a financial ratio that measures how efficiently a company uses its fixed assets, such as property, plant, and equipment, to generate sales. The ratio is calculated by dividing net sales by the average net fixed assets. A high fixed-asset turnover indicates effective use of fixed assets to produce revenue, while a low ratio suggests underutilization or inefficiencies. This ratio is crucial for assessing operational efficiency, especially in asset-intensive industries like manufacturing.

Example

A manufacturing company with net sales of $10 million and average net fixed assets of $2 million has a fixed-asset turnover ratio of 5, indicating it generates $5 in sales for every $1 of fixed assets.