How this calculator works
Fixed asset turnover divides revenue by average fixed assets, which include property, plant and equipment net of depreciation. It measures how efficiently a business uses its long-lived investment to generate sales. Capital-intensive industries such as utilities, airlines and heavy manufacturing tend to have low ratios because each dollar of sales needs a lot of equipment. Retailers, services and software firms can run much higher ratios. A falling ratio may mean the company has invested ahead of demand, or that assets are idle; a rising ratio may mean assets are working harder or that the company has been underinvesting.
Formula
Fixed asset turnover = revenue / average fixed assets. Average fixed assets = (opening fixed assets + closing fixed assets) / 2. Revenue = fixed asset turnover × average fixed assets. Average fixed assets = revenue / fixed asset turnover.
Worked example
Revenue of $1,500,000 and average fixed assets of $500,000 give a turnover of 3.0. If the company added a $100,000 machine without increasing sales, average assets would rise and the ratio would fall, which is the signal the ratio is designed to catch.
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Frequently asked questions
Should I use gross or net fixed assets?
Net fixed assets are the usual choice because they match the balance sheet. Gross assets can be useful when comparing companies of different ages, since net assets depend on how much depreciation has accumulated. Whichever you use, be consistent.
Why average the asset balance?
Assets bought partway through the year did not contribute for the full period. Averaging opening and closing balances roughly matches the asset base to the revenue it produced. A single closing balance overstates the base if assets were bought recently.
Is a higher turnover always better?
Not necessarily. Very high turnover can mean the company is running equipment into the ground or has deferred maintenance. Compare with capital spending and with asset age before concluding that efficiency is strong.