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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

FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The major fixed assets for each business include aircraft, sorting and handling facilities, delivery vehicles, and information technology. The sales and average book value of fixed assets reported on recent financial statements for each company were as follows:

  FedEx UPS
Sales (in millions) $47,453 $58,363
Average book value of fixed assets (in millions) 20,213 18,317
  1. a. Compute the fixed asset turnover ratio for each company. Round to one decimal place.
  2. b. Which company appears more efficient in using fixed assets?
  3. c. Interpret the meaning of the ratio for the more efficient company.

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 F

Sales= $47,453 millions

Total average fixed assets= $20,213 millions

FixedAssets Turnover=SalesAverage FixedAssets=$47,453$20,213=2

b.

To determine

To find: which company appears more efficient in using fixed assets.

c.

To determine

To interpret: the meaning of the ratio for the more efficient company.

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