How to Calculate Sales to Fixed Assets Ratio
The formula on how to calculate asset turnover ratio or the sales to fixed assets ratio is net sales divided by fixed assets:
Sales to Fixed Assets = Net Sales / Fixed Assets.
The numerator “sales" is the net sales and not gross sales. Net sales refer to the operating revenues earned by a firm when it sells its products or services. Net sales are the total amount of earned revenue from sales minus the expenses for the manufacture and delivery of the product or service. Gross sales, on the other hand refers to the total revenue earned when selling a product or service, without deducting the cost to manufacture, sell or distribute the product or service. Net sales play a large part in determining the income statement and cash flow statement.
The denominator fixed assets is derived from the balance sheet, and is the cost of acquiring fixed assets less depreciation of such assets. Fixed assets or non-current assets are the assets of a company not directly sold to the customer or end-users. The most common examples of fixed assets include property, plants, and equipment (PP&E). It includes all machinery used in the manufacturing process, and supporting infrastructure such as furniture, vehicles, computers, office equipment, land, and items deemed to be a fixed asset.
Image Credit: geograph.org.uk/Simon Johnson