Fixed Asset Turnover Ratio Calculator

With our online FAT Ratio calculator, you can examine the operational efficiency of any company by analyzing how well a company utilizes its fixed asset to generate revenue.

Below we describe the fixed Fixed Asset Turnover definition, explain how you can calculate it, and finally, how to use it to grow your business.

What is the Fixed Asset Turnover?

The Fixed Asset Turnover (FAT) is a ratio of a company's revenue to its fixed assets. The value of this metric reveals how well a company uses its fixed assets to generate sales. 

The fixed assets include property, plant, and equipment (PP&E) but not cash or inventory.

The higher the FAT ratio, the more efficiently the company utilizes fixed assets to grow revenue.

The Fixed Asset Turnover is particularly useful for industries that require high investments in infrastructure, such as the production industry.

How to calculate Fixed Asset Turnover Ratio?

To work out the FAT ratio value, follow the procedure:

1. Calculate the average fixed assets value using the standard average formula: average_fixed_assets = (initial_assets_value + ending_fixed_value) / 2
2. Find the company's revenue in the income statement.
3. Once you gather all the required information, the FAT ratio calculation is pretty straightforward. You can use our Fixed Asset Turnover Ratio Calculator or the formula below.

The Fixed Asset Turnover Ratio Formula

FAT = revenue / average_fixed_assets

How to use FAT Ratio to optimize your business?

As we mentioned before, you should seek to increase the FAT ratio because a high value would mean you use your fixed assets efficiently.

In order to improve the FAT ratio, you need either increase the revenue while fixed assets stay on the same level or decrease the value of the fixed assets.

Outsourcing some resources is the easiest way of decreasing fixed assets without limiting the company's potential. For example, an e-commerce company may use a fulfillment service (link) instead of its warehouse.

This way, a fixed asset is turned into a service and becomes a variable asset. It is not only an accounting technique but could also bring additional benefits to the business, like easier scaling of the company.

For the same reason, companies opt for leasing instead of buying a fleet of cars.

If the Fixed Asset Turnover for your company is low, it is not necessarily bad. Some business types require extensive infrastructure to operate. It would be best if you compared it with your industry's benchmark. 

What is the difference between the Fixed Asset Turnover and Asset Turnover Ratio?

The Fixed Asset Turnover focuses only on non-current assets that represent long-term investments like land, plant, or other critical infrastructure.

The Asset Turnover Ratio takes into account the entire company's assets, so they include cash, inventory, as well as fixed assets.

Similar metrics

The FAT ratio is one of many metrics that you, as an investor or business, can use to analyze the operational efficiency of a business.

On Calcopolis, you can find helpful calculators for evaluating a company's cash flow, like levered free cash flow, or the company's profitability, like the EBITDA margin calculator.

Authors

Created by Lucas Krysiak on 2022-10-24 16:20:26 | Last review by Mike Kozminsky on 2022-10-29 16:09:39