Fixed Asset Turnover

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Definition

Fixed asset turnover are the amount of company revenues over its fixed assets. A fixed asset turnover of nine means that a company's fixed assets are generating nine times more revenue than the value of the fixed assets.

If Microsoft has a fixed asset turnover of nine, and the value of its fixed assets were eight billion, we would assume Microsoft's revenues to be 72 billion dollars.

Higher fixed asset turnovers illustrate a company's ability to generate more sales based off of fixed assets. While this ratio is often used in evaluating capital intensive companies, for companies that produce service-related goods, this ratio holds less significance.

Companies in capital-intensive markets often make large PPE purchases (ie. an airline purchasing Boeing A380s to replace older aircraft). These purchases are expected to help drive revenues for the airliner. In contrast, consulting companies have little to no spending on PPE, thus fixed-asset turnovers would look artificially high.

Formula

Fixed Asset Turnover (Quarterly) = Revenues (Quarterly) / Average Net PPE
Fixed Asset Turnover (TTM) = Revenues (TTM) / Average Net PPE

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