Fixed asset turnover
Fixed asset turnover measures how much sales a company generates from its plant, machinery, and buildings alone, leaving out cash, inventory, and receivables.
Formula
Fixed asset turnover
Fixed Asset Turnover = Sales ÷ Net Fixed Assets
Benchmark: Higher is better; a drop right after a large capex is normal, a drop without one is not
Reading the number
Total asset turnover can be dragged down by a pile of idle cash or a bloated receivables book. Fixed asset turnover isolates the productive plant and asks how hard it is being worked. It is the right ratio for capital-intensive businesses: cement, steel, power, auto, and anything that builds a factory before it sells a product.
The same two-cause rule applies as for total asset turnover. Falling fixed asset turnover after a new plant is commissioned is expected and should recover as the plant fills. Falling fixed asset turnover with no new plant means volumes are shrinking, and the one year sales growth figure will confirm it.
Indian example
Related ratios
Glossary terms
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