From the course: Running a Profitable Business: Understanding Financial Ratios

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Fixed asset turnover and other utilization ratios

Fixed asset turnover and other utilization ratios

From the course: Running a Profitable Business: Understanding Financial Ratios

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Fixed asset turnover and other utilization ratios

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- Okay, we've looked at a couple of efficiency measures related to our current assets, days' sales in inventory, average collection period. Let's turn our attention for a second to our fixed assets, our long-term assets. Remember why we buy long-term assets, property, plant and equipment? The reason we buy these is to generate sales. We buy assets to generate sales, we increase our sales in hopes of increasing our income. In the case of how efficiently we used our fixed assets, we can actually calculate that. There's a measure called fixed-asset turnover which measures the number of dollars in sales generated by each dollars worth of fixed assets. That's computed by taking sales and dividing it by our average fixed assets. Let's illustrate using Nordstrom again. In 2013, Nordstrom had generated $4 and 54 cents in sales for every dollar worth of assets they had. Is that good or bad? Well, let's compare it to 2012. In…

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