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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

Verizon Communications Inc. is a major telecommunications company in the United States. Two recent balance sheets for Verizon disclosed the following information regarding fixed assets:

  End of Year (in millions) Beginning of Year (in millions)
Property, plant, and equipment 5220,163 $230,508
Less accumulated depreciation 136,622 140,561
Property, plant, and equipment (net) $83,541 $89,947

Verizon's revenue for the year was $131,620 million. Assume that the fixed asset turnover ratio for the telecommunications industry averages approximately 1.1.

  1. a. Determine Verizon's fixed asset turnover ratio. Round to one decimal place.
  2. b. Interpret this ratio with respect to the industry average.

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 Company V.

Explanation

Calculate the fixed asset turnover ratio of Company V.

Sales revenue= $131,620 million

Total average fixed assets= $86,744 (1)

FixedAssets Turnover=SalesAverage FixedAssets=$131,620$86,744=1.5times

Working note:

Calculate the average total fixed assets.

Beginning total fixed assets = $89,947 million

Ending total fixed assets  = $83,541 million

Average total assets=Total Beginning FixedAssets+Total EndingFixed Assets2

b.

To determine

To interpret: the fixed asset turnover ratio with the industry average.

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