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Ratios: Fixed Asset Turnover quiz #1 Flashcards

Ratios: Fixed Asset Turnover quiz #1
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  • What is the formula for the fixed asset turnover ratio, and how do you calculate average fixed assets if both beginning and ending balances are provided?
    The formula for the fixed asset turnover ratio is Fixed Asset Turnover = Net Sales / Average Fixed Assets. Average fixed assets are calculated as (Beginning Balance + Ending Balance) / 2.
  • Why is benchmarking important when analyzing the fixed asset turnover ratio, and what does a higher ratio indicate?
    Benchmarking is important because different industries have varying levels of fixed assets, so comparing the ratio to competitors and industry averages provides meaningful context. A higher fixed asset turnover ratio indicates greater efficiency in utilizing fixed assets to generate sales.
  • What does the fixed asset turnover ratio measure in a business?
    It measures how efficiently a company uses its fixed assets to generate net sales.
  • What is the formula for calculating the fixed asset turnover ratio?
    The formula is Fixed Asset Turnover = Net Sales / Average Fixed Assets.
  • How do you calculate average fixed assets if both beginning and ending balances are provided?
    Average fixed assets are calculated as (Beginning Balance + Ending Balance) / 2.
  • What should you do if only one fixed asset balance is provided when calculating the ratio?
    If only one number is given, use that number as the denominator instead of calculating an average.
  • What does a higher fixed asset turnover ratio indicate about a company’s efficiency?
    A higher ratio indicates greater efficiency in utilizing fixed assets to generate sales.
  • Why is benchmarking important when analyzing the fixed asset turnover ratio?
    Benchmarking is important because different industries have varying levels of fixed assets, so comparing to competitors and industry averages provides meaningful context.
  • How does the fixed asset turnover ratio differ across industries?
    Industries with more fixed assets, like airlines or bus companies, will have different benchmarks for this ratio compared to industries with fewer fixed assets.
  • What does the numerator and denominator represent in the fixed asset turnover ratio formula?
    The numerator is net sales, and the denominator is average fixed assets.