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. 

Gray Frame Corner

Formula

Fixed Assets Turnover Ratio  

Average Fixed Assets 

=

Net Sales 

Limitation Of Fixed Assets Turnover Ratio 

Brush Stroke

Industry Limitations 

It is most beneficial to compare firms in different manufacturing concerns. The real estate turnover ratio cannot be used in asset-light sectors, such as those that rely heavily on technology.

Brush Stroke

Does Not Take Profit Into Account 

The Fixed Asset turnover ratio only measures the correlation between  Fixed Assets and net sales and not the cause of what impacted the figures.

Brush Stroke

Difference in Accounting Policies 

Two companies in the same industry or over a separate industry can have different accounting policies with regard to depreciation methods. This skews the results of the comparison of fixed assets turnover ratio over the industry.

Brush Stroke

Performance Subject to Manipulation 

The Fixed Assets turnover ratio is helpful in performing entities having high-value investments in assets where the board of directors want to assess the efficiency of these fixed assets in relation to the turnover of the company.