Overview

Fixed asset turnover (FAT) is an efficiency ratio which measures a company's efficiency in using its fixed assets to generate revenue. Fixed assets are non-current or long-term assets that are tangible and used to generate sales. Examples of fixed assets include land, buildings, plant, equipment, furniture, and vehicles. The formula for calculating the fixed asset turnover ratio is:

Fixed Asset Turnover = Net Sales / Average Fixed Assets

When the FAT ratio is low, it might indicate that the business is underperforming in sales while investing in a large number of fixed assets. On the other hand, it is preferrable for a business to have high FAT ratio because it indicates that the company is efficient in managing fixed assets to generate a return.

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