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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 a. Compute the fixed asset turnover ratio for each company. Round to one decimal place. b. Which company appears more efficient in using fixed assets? c. Interpret the meaning of the ratio for the more efficient company.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 10, Problem 10.25EX
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.

Expert Solution

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 of Solution

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

Expert Solution

b.

To determine

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

Expert Solution

c.

To determine

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

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