Fixed Asset Turnover Ratio Calculator

With this fixed asset turnover ratio calculator, you can easily calculate the fixed asset turnover (FAT) of a company. The fixed asset turnover is a ratio that can help you to analyze a company's operational efficiency.

This article will help you understand what is fixed asset turnover and how to calculate the FAT using the fixed asset turnover ratio formula. We will also show you how to apply it by demonstrating some examples.

The fixed asset turnover (FAT) is one of the efficiency ratios that can help you assess a company's operational efficiency. This metric analyzes a company's ability to generate sales through fixed assets, also known as property, plant, and equipment (PP&E).

A higher fixed asset turnover ratio generally means that the company's management is using its PP&E more effectively. As fixed assets are usually a large portion of a company's investments, this metric is useful to assess the ability of a company's management. This metric is also used to analyze companies that invest heavily in PP&E or long-term assets, such as the manufacturing industry.

Luckily, our fixed asset turnover ratio calculator helps you estimate the FAT in a second! Let's see how it works.

Let's talk about how the fixed asset turnover formula works using an example. Assuming you have bought a stock of Company Alpha with the following information:

• Name: Company Alpha;
• Starting fixed assets: $15,000,000;
• Final fixed assets: $18,000,000; and
• Revenue: $7,500,000.

Calculating the fixed asset turnover ratio requires only 3 steps:

1. Evaluate the average fixed asset.

   The average fixed assets can be calculated using the formula below:

   average fixed assets = (starting fixed assets + final fixed assets) / 2

   For our example, the average fixed assets is equal to ($15,000,000 + $18,000,000) / 2 = $16,500,000.

2. Determine the revenue.

   Determining the revenue of a company is straightforward. The revenue is always the first line item on a company's income statement. You can find the income statement in every company's annual report. Check our revenue Calculator and sales calculator to understand more on this topic.

   Of course, you can also access this information from some financial data sites, such as Bloomberg and Financial Times.

3. Work out the fixed asset turnover ratio.

   The final step is to calculate the fixed asset turnover with the fixed asset turnover formula:

   fixed asset turnover = revenue / average fixed assets

   Hence, the fixed asset turnover for Company Alpha is $7,500,000 / $16,500,000 = 0.45x.

After understanding the fixed asset turnover ratio formula, we need to know how to interpret the results.

We generally assume that the higher the fixed asset turnover ratio, the better. This is because a high fixed asset turnover indicates that the company is effective and efficient in utilizing its fixed assets or PP&E.

However, no one rule defines what a good fixed asset turnover ratio is. As different industries have different mechanics and dynamics, they all have a different good fixed asset turnover ratio. For example, a cyclical company can have a low fixed asset turnover during its quiet season but a high one in its peak season. Hence, the best way to assess this metric is to compare it to the industry mean.

Also, a high fixed asset turnover does not necessarily mean that a company is profitable. A company may still be unprofitable with the efficient use of fixed assets due to other reasons, such as competition and high variable costs.

You can also check out our debt to asset ratio calculator and total asset turnover calculator to understand more about business efficiency.