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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Fixed asset turnover ratio

Amazon.com, Inc. is the world's leading Internet retailer of merchandise and media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc. is the world's leading Internet television network. Both companies compete in the digital media and streaming space. However, Netflix is more narrowly focused in the digital streaming business than is Amazon. Sales and average book value of fixed assets information (in millions) are provided for Amazon and Netflix for a recent year as follows:

  Amazon Netflix
Sales $107,006 $6,780
Average book value of fixed assets 19,403 162
  1. a. Compute the fixed asset n1rnover ratio for each company. Round to one decimal place.
  2. b. Which company is more efficient in generating sales from fixed assets?
  3. c. Interpret your results.

a.

To determine

Fixed Asset turnover: It is a ratio that measures the productive capacity of the fixed assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total fixed assets. The following is the formula to calculate the ratio:

FixedAsset turnover =SalesAverage totalfixed assets

To determine: the fixed asset Turnover Ratio of each company.

Explanation

Calculate the fixed asset turnover ratio:

For Company A

Sales= $107,006 millions

Total average fixed assets= $19,403 millions

FixedAssets Turnover=SalesAverage FixedAssets=$107,006$19,403=5

b.

To determine

To find: which company is more efficient in generating sales from fixed assets.

c.

To determine

To interpret: the results.

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