Final answer:
The fixed asset turnover ratio is calculated by dividing net sales by average net fixed assets, which is a measure of a company's efficiency in using its fixed assets to generate sales. A T-account helps to understand assets and liabilities involved in calculating various financial ratios, including fixed asset turnover.
Step-by-step explanation:
The formula for the fixed asset turnover ratio equals net sales divided by average net fixed assets. This financial metric is used to assess a company's efficiency in generating net sales from its fixed assets, which include property, plant, and equipment. The higher the ratio, the better the company is at effectively using its fixed assets to generate sales.
Understanding this ratio involves basic accounting principles, such as the concept of a T-account. A T-account is a visual representation of a ledger account that shows the assets on the left side and the liabilities plus net worth on the right side. For a bank or any firm, assets must always equal liabilities plus net worth. When analyzing ratios like the fixed asset turnover, it's essential to have a clear understanding of what constitutes a company's assets, which can include reserves, loans made, or securities purchased, as mentioned in the context of a bank's T-account in the reference material.
In the same vein, understanding the bank's liabilities, such as deposits owed to customers, is crucial. A healthy business will maintain a positive net worth, i.e., total assets exceed total liabilities, ensuring a stable T-account balance that reflects financial stability.