What is the rotation coefficient of fixed assets and how is it calculated by the formula?

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On a commercial or corporate level, formulas and other tools are typically used to assess a company's financial situation. For example, using accounting reports, data analysis, or evaluating the turnover rate of a company's fixed assets.

In this article we will talk nello specific of What is the rotation coefficient of fixed assets? e how is this index calculated? as well as other elements you need to get all the information.

What is the turnover rate of fixed assets?

The asset turnover ratio is a financial metric, which allows a company to measure the percentage of reinstatement generated by equity. As a general rule, this counter is defined as a percentage and it is one of the most used tools by investors and entrepreneurs.

The advantage that exists in this indicator is that it is not very difficult to calculate or interpret, for those who may not know. On the other hand, when a company or institution uses its activities correctly , will achieve a high turnover rate of assets.

How is the percentage of fixed assets calculated?

Before understanding how these percentages are calculated, it is important to take into account two key factors, because otherwise the index could not be taken.

  1. Net sales amount: in other words, it is the sum of all the revenues that a company has generated in its commercial activity, removing withholdings and discounts for the year.
  2. Net fixed assets: ie the amount of the value of all appreciable or palpable assets as well as intangible assets or those that are not physically visible to the company less the amortization of annual expenses.

Finally, having this accounting data, you will be able to obtain the valuation of the Asset Turnover Index, dividing the value of net sales by the net asset value.

  • Formula: business turnover = net sales / net fixed assets

Use of the index of rotation of fixed assets

Large companies are the ones that use this formula the most, since generally make higher investment movements in their production equipment. Management strives to use the index to ensure that the equipment is used correctly, within its most practical limits.

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In this way the rate of the company may be compared to that of other companies which are of competence, thus defining who is making the best use of the equipment.

Those interested in the index of fixed assets

The index or rate of fixed assets is recorded internally as well as externally, in this field they would be directors and the board of directors. The latter two control and guarantee a correct balance of spaces for equipment and systems throughout the company or company.

On the other hand, commercial banks together with creditors analyze fixed assets and ensure that they produce the income to be able to pay off loans and interest. Lenders are interested in the rate to ensure that the company invests effectively and that it is profitable for fixed assets.

What is a falling index?

While a high fixed asset index indicates a stable income stream and generates a rate of economic improvement. However, a falling rate can consist of two aspects: firstly that the sales are decreasing and two that the equipment purchases are outweighing the profit they generate .

If the volume of the business or sale decreases, managers need to quickly ascertain if any outdoor business they can support the investment of assets . So, if machinery purchases increase, the problem could be that they are overspending or sales are gaining ground with new equipment.

We have finished this informative post and are very happy to help you better understand these business accounting topics. If you want easier and simpler information on economics and finance you can visit the miracomosehace.com page .

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