How Efficient is the Company in Using its Fixed Assets to Generate Sales?

What is the company's fixed asset turnover ratio for 2021?

If the company has net sales revenue of $4.2 million during 2021, what is the company's fixed asset turnover ratio for the year?

Answer:

The company's fixed asset turnover ratio for 2021 is 1.47.

To calculate the fixed asset turnover ratio, we need to divide the net sales revenue by the average value of fixed assets. The average value of fixed assets can be calculated by adding the beginning and ending values of fixed assets and dividing by two.

Beginning value of fixed assets = $2.6 million

Ending value of fixed assets = $3.1 million

Average value of fixed assets = ($2.6 million + $3.1 million) / 2 = $2.85 million

Net sales revenue = $4.2 million

Fixed asset turnover ratio = Net sales revenue / Average value of fixed assets

Fixed asset turnover ratio = $4.2 million / $2.85 million

Fixed asset turnover ratio = 1.47

This means that the company generated $1.47 in net sales revenue for every dollar of fixed assets it had during the year. A higher fixed asset turnover ratio indicates that a company is using its fixed assets more efficiently to generate sales.