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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

The following table shows the sales and average book value of fixed assets for three different companies from three different industries for a recent year:

Company (Industry) Sales (in millions) Average Book Value of Fixed Assets (in millions)
Alphabet (Google) Inc. (Internet) $74,989 $26,450
Comcast Corporation (communications) 74,510 32,309
Wal-Mart Stores, Inc. (retail) 485,651 117,281
  1. a. For each company, determine the fixed asset turnover ratio. Round to one decimal place.
  2. b. Explain Comcast's fixed asset turnover ratio relative to the other two companies.

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= $74,989 millions

Total average fixed assets= $26,450 millions

FixedAssets Turnover=SalesAverage FixedAssets=$74,989$26,450=2.8times

For Company C

Sales= $74,510 millions

Total average fixed assets= $ 32,309 millions

FixedAssets Turnover=SalesAverage FixedAssets=$74,510$32,309

b.

To determine

To explain: compnay C;s fixed asset turnover ratio relative to the other two companies.

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