![]() ![]() This ratio measures the efficiency of a company’s PP&E in generating sales. It assesses whether a company is investing wisely in its assets. ![]() A high asset turnover ratio indicates greater efficiency to generate sales from fixed assets. Analysts should keep an eye on any significant asset purchases or disposals during a year as these can impact the asset turnover ratio. The ratio is lower for asset-intensive industries such as telecommunications or utilities.įixed Asset Turnover = Sales / Net fixed assets Capex Ratio The ideal asset turnover ratio varies by industry. The capex ratio measures investments in PP&E relative to company sales. An increase in this ratio overtime would suggest future growth. This pattern of continuous reinvestment of retained earnings year after year is what drives company growth andĬapex Ratio = Capital expenditures / Sales Average Age of PP&E If a company continues to invest in resources through increase in capital expenditure, then we would expect to see an increase in sales the future. The average age ratio appraises the age of the asset (in this case, PP&E) and shows the average age of assets. A high ratio would suggest that much of the asset’s life has already been used, and the business faces an “ageing asset base”, which will require investment.Īverage Age Ratio = Accumulated depreciation / Gross PP&E Reinvestment Ratio By measuring accumulated depreciation relative to the gross value of the asset, we can see how “old” the asset is as a percentage of its total life. The reinvestment ratio (sometimes referred to as the replenishment ratio) compares Capex to depreciation. It is an indicator of what level of investment is being made into assets. In other words, are depreciating assets being replaced? This ratio is expressed as a multiple and a healthy business should expect this multiple to be greater than 1. It does not store any personal data.Due to inflation, assets purchased many years ago will cost more to replace than if purchased today. The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. The cookies is used to store the user consent for the cookies in the category "Necessary". ![]() The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". The cookie is used to store the user consent for the cookies in the category "Analytics". These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly.
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