Fixed asset turnover ratio

Fixed asset turnover = Sales revenue/Net fixed assets = 66,415/ 18,575 = 3.58 times 

Fixed asset turnover ratio evaluates how efficiently management uses fixed assets. Remember fixed assets include those with long useful lives, such as property, plant, and equipment that are used in the production of goods (PP E). As shown here, PepsiCo generates just more than 3.50 for each dollar it has in fixed assets. 

As with other ratios, careful interpretation is required. Property, plant, and equipment (PP E) is typically recorded on the balance sheet at cost. This could be misleading when compared to fixed asset turnover between similar companies. For instance, compare two identical companies however, one is older than the other. The only difference between the two companies is when each company purchased its PP E. Since inflation affects the purchase price of PP E, the older company records its fixed assets at a value lower than the younger company, which recently purchased fixed assets. Comparing the fixed asset turnover of these two companies, it would appear that the older company more efficiently uses fixed assets, when in fact this may not be the case at aU. 

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Thus (ROA) can be improved by increasing either (ATR) or (PM). A variation of Eq. (9-131) is the fixed-asset turnover ratio (FATR), defined as... 

Annual income or expenditure particularized by tbe subscript Annual allowances against tax other than for depreciation of fixed assets Annual writing down (depreciation) of fixed assets, allowable against tax Asset-turnover ratio defined by Eq. (9-131)... 

With the revised DuPont model, notice that ROA is 2.03% and ROE is 4.65%, both of which are improvements over the current distribution network. Furthermore, EBIT and net profit margin both improve (Table 8.10). While fixed asset turnover declined slightly, the overall improvements outweigh any slight decline in this ratio. Moreover, since earnings per share (EPS) is important to Wall Street and executives alike, seeing that EPS improves since net profit increased to 8.33M and provided the number of shares has not increased. However, if the company increased the number of shares to raise capital for this project instead of using their own cash, then EPS may decline. 

Activity ratios are a measure of how effectively a firm manages its assets. There are two inventory/turnover ratios in common use today. The inventory/sales ratio is found by dividing the inventory by the sales. Another method is to divide the cost of sales by inventory. The average collection period measures the number of days that customers invoices remain unpaid. Fixed assets and total assets turnover indicate how well the fixed and total assets of the firm are being used. 

Sales/capital employed Sales/fixed assets Sales/stock Stock turnover Sales/employee Profits/employee Current ratio Gross profit Cost of sales Debtor days Creditor days Cash flow... 

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