Fixed asset turnover ratio (FATR) is an efficiency ratio that shows how well a company has used fixed assets to generate sales. It compares net sales to fixed assets to calculate a company's return on investment in plants, buildings, equipment, and other fixed assets.
Fixed Assets Turnover Ratio
Average Fixed Asset
The manufacturing sector is where most of the investment is made. Plant, equipment and other fixed assets are purchased in large quantities by manufacturing companies. Construction companies benefit from a fixed asset ratio, which takes a different approach to measure return on assets in the context of top-line growth.
Investors look at this ratio year after year to see whether fixed assets have improved or deteriorated in efficiency. It also enables them to determine when reinvestments in fixed assets should be made in order to maintain growth targets.
If the fixed asset turnover ratio has suddenly plummeted, it signifies that the operations' fixed assets have become outmoded and must be sold.