Question

The company has net sales revenue of $7.4 million during 2018. The company's records also included the following information: Assets 12/31/17 12/31/18 Property, plant and equipment $ 4.2 million $ 6.3 million Licensing agreements $ 2.4 million $ 2.3 million Goodwill $ 2.2 million $ 2.2 million Investments $ 2.3 million $ 2.4 million What is the company's fixed asset turnover ratio for 2018

Answer 1

3.15 times

Step-by-step explanation:

It is ratio of Sales to the fixed asset of a company. It shows that how effectively the company using its fixed assets to generate the revenue. It measures the efficiency of the fixed asset in making sales.

It uses the net sales value and the average net fixed assets of the company.

According to given data

Assets 12/31/17 12/31/18

Property, plant and equipment $4.2 million $6.3 million

Licensing agreements $2.4 million $2.3 million

Goodwill $2.2 million $2.2 million

Investments $2.3 million $2.4 million

Total Fixed assets $2.3 million $2.4 million

Average Fixed Assets = ( $2.3 million + $2.4 million ) / 2 = 2.35 million

Net Sales = $7.4 million

Formula for Fixed Asset Turnover

Fixed Asset Turnover = Net Sales / Average Net Fixed Assets

Placing values in the formula

Fixed Asset Turnover = $7.4 million / $2.35 million = 3.15 times

Answer 2

1.42

Step-by-step explanation:

The fixed asset turnover is a financial ratio that shows how much sales is generated by management for each $1 invested in fixed asset over the period. It is the ratio of sales to average fixed asset.

Average fixed asset is the sum of the beginning and ending fixed asset divided by 2.

Average fixed assets

= ($4.2 + $6.3)/2 (Amount in millions)

= $5.25 million

The company's fixed asset turnover ratio for 2018

= $7.4/$5.2

= 1.42

It means that the company makes a sales revenue of $1.42 for every $1 invested in fixed assets.