Tracking fixed asset turnover is critical for businesses using QuickBooks to monitor financial performance, but few know how to easily calculate this ratio.
In this post, you'll learn the exact step-by-step process for calculating fixed asset turnover in QuickBooks to benchmark asset utilization.
First, we'll cover the meaning and importance of fixed asset turnover ratios. Next, you'll see how to access fixed asset data and match it with total revenue figures in QuickBooks. Finally, we'll walk through the fixed asset turnover formula calculation and provide strategies to improve your ratio over time.
Introduction to Fixed Asset Turnover in QuickBooks
This article provides an overview of how to calculate the fixed asset turnover ratio in QuickBooks. This financial metric measures how efficiently a business utilizes its fixed assets to generate revenue.
Understanding the Fixed Asset Turnover Ratio
The fixed asset turnover ratio shows how productive a company's fixed assets are. It is calculated by dividing net sales by average fixed assets over a period. A higher ratio indicates assets are generating more revenue relative to their value.
This measures how well fixed assets like property, plants, and equipment generate sales. Tracking this over time shows if assets are performing efficiently or if more/better assets are needed to grow revenue.
The Importance of Fixed Asset Turnover in Financial Ratio Analysis in QuickBooks
QuickBooks has robust fixed asset tracking features. By calculating turnover ratios in QuickBooks using fixed asset and revenue data, businesses can:
- Assess if assets are being used optimally over time
- Compare asset efficiency versus industry benchmarks
- Identify needs to upgrade, utilize, or invest in assets
Monitoring fixed asset turnover is key for financial analysis and planning capital expenditures.
Preparing to Calculate Fixed Asset Turnover Ratio in QuickBooks
To determine fixed asset turnover in QuickBooks, users need:
- Up-to-date fixed asset records and accumulated depreciation
- Total net sales for the measurement period
- Understanding of accounting ratios and analysis
With this data, QuickBooks can automate the turnover calculation. Reviewing trends over time and against averages provides actionable insights into fixed asset performance.
Careful tracking and analysis of fixed assets is key for efficient operations. QuickBooks empowers users with the tools and data needed to maximize fixed asset productivity.
What is fixed asset turnover ratio formula?
The fixed asset turnover (FAT) ratio measures how efficiently a company uses its fixed assets to generate sales. It is calculated by dividing net sales by the average fixed assets.
The formula is:
Fixed Asset Turnover Ratio = Net Sales / Average Fixed Assets
For example, if a company had $5,000,000 in net sales last year and its average fixed assets for the year were $2,000,000, then its fixed asset turnover ratio would be:
Fixed Asset Turnover Ratio = $5,000,000 / $2,000,000 = 2.5
A higher fixed asset turnover ratio indicates that a company is using its fixed assets more efficiently to generate sales. However, a high ratio does not necessarily mean the company is more profitable overall.
Some key things to know about the fixed asset turnover ratio:
- It focuses specifically on fixed assets like property, plants, and equipment - not current assets.
- Average fixed assets is used rather than total fixed assets at one point in time. This smooths out fluctuations.
- The ratio varies widely across different industries depending on how asset-intensive they are.
- It should be benchmarked against industry averages and the company's own historical averages.
- A rising ratio over time generally indicates improving fixed asset utilization. A falling ratio may suggest over-investment in fixed assets.
While the FAT ratio measures fixed asset efficiency, metrics like return on assets (ROA) better indicate overall profitability. But analyzing both together can provide insights into how well fixed assets are contributing to the bottom line.
How do you calculate turnover in Quickbooks?
Calculating turnover in QuickBooks is straightforward with the Profit and Loss Comparison report. Here are the steps:
- Select Reports in the navigation bar
- In the search bar, type "Profit and Loss Comparison" and click on the report
- Adjust the Report Period and Compare to fields as needed
- Click Customize
- Under Rows/Columns, select Previous year (PY) and % change
- Click Run Report
The turnover will be shown as total income at the top of the report. The year-over-year percentage change is also calculated automatically, giving insight into growth trends over time.
Some tips when analyzing turnover with this report:
- Compare monthly or quarterly periods to identify seasonal fluctuations
- Review both total turnover and turnover by product/service line
- Factor one-time events when interpreting percentage changes
- For more detail, export to Excel and calculate additional metrics
With a few clicks, QuickBooks makes it easy to track turnover results and trends. Monitoring this metric can help identify opportunities for growth and areas for improvement.
How to calculate the asset turnover?
The asset turnover ratio measures a company's efficiency in generating sales from its assets.
To calculate the asset turnover ratio, use this formula:
Asset Turnover Ratio = Net Sales / Average Total Assets
For example, if a company had $5 million in net sales last year and its average total assets for the year were $2.5 million, the calculation would be:
Asset Turnover Ratio = $5 million / $2.5 million = 2
An asset turnover ratio of 2 means that for every $1 of assets, the company generated $2 in sales. The higher the ratio, the better, because it means assets are being used efficiently to generate sales.
Some key things to keep in mind when calculating asset turnover ratio:
- Use net sales, not gross sales, in the formula
- Average total assets over the period rather than using assets from one point in time
- Compare the ratio to industry benchmarks or past company performance to interpret efficiency
Monitoring the asset turnover ratio over time can indicate if a business is optimizing using fixed assets like property, plants, and equipment to generate profits. It's an important metric for understanding how well assets are converted into revenue.
sbb-itb-beb59a9
Tracking Fixed Assets in QuickBooks
The first step is to locate the total value of fixed assets in QuickBooks, which will be the denominator in the ratio calculation.
Accessing QuickBooks Fixed Asset Management Features
QuickBooks Online and QuickBooks Desktop both offer tools to track fixed assets. Here are the steps to access the fixed asset details:
- For QuickBooks Online, go to the Gear icon > Accounting > Fixed Assets. This will show the full fixed asset register.
- For QuickBooks Desktop, go to Lists > Fixed Asset Items. This menu lists all the fixed assets entered into the system.
Review the fixed asset details like date purchased, original cost, depreciation method, accumulated depreciation, and net book value. Having these data points will help calculate the turnover ratio.
Determining the Average Fixed Assets Value
To calculate the fixed asset turnover, use the average fixed asset value over the period rather than the ending value. Here are the steps to determine the average:
- Select the desired date range, such as the past 12 months.
- Add up the net book values of fixed assets at the start and end of the 12 month period.
- Divide the total by 2 to calculate the average fixed asset value for the year.
Using the average fixed assets value accounts for assets added or disposed over the 12 month period.
Summarizing Total Fixed Assets for Turnover Calculation
The final step is to establish the denominator for the turnover formula:
- Export the fixed asset register to Excel or another spreadsheet program.
- Use the filter function to select only the fixed assets active during the chosen 12 month period.
- Sum the net book value column to get the total average fixed assets.
This total average fixed asset value will serve as the denominator in the turnover ratio calculation. The revenue over the same period will be the numerator.
Following these steps will produce an accurate fixed asset turnover ratio using QuickBooks accounting data. Monitoring this over time helps assess capital intensity and asset utilization.
Calculating Revenue in QuickBooks Online Accounting
Next, determine the revenue amount over the same period as the fixed assets to calculate the ratio's numerator.
Running Profit & Loss Reports for Revenue Data
To find the revenue amount, you'll need to run a Profit & Loss report in QuickBooks for the chosen time period. Go to Reports > Profit & Loss and select the date range to match the fixed asset data. This will show all revenue and expenses over that period.
Isolating Total Revenue for Fixed Asset Turnover Calculation
On the Profit & Loss report, locate the Total Income amount. This represents all revenue earned over the period and will serve as the numerator for calculating fixed asset turnover.
Refining Revenue Data for Accurate Ratio Analysis
For even greater precision in your ratio analysis, you can filter the Profit & Loss report to only include revenue generated directly from fixed asset operations. However, the total income amount often provides an adequate high-level look at revenue when calculating this financial metric.
Applying the Fixed Asset Turnover Formula in QuickBooks
With the numerator and denominator figures, you can now calculate the fixed asset turnover ratio in QuickBooks.
Executing the Fixed Asset Turnover Ratio Calculation
To calculate the fixed asset turnover ratio in QuickBooks, simply divide total revenue by average fixed assets. For example:
Fixed Asset Turnover Ratio = Total Revenue / Average Fixed Assets
So if total revenue was $2,000,000 and average fixed assets were $1,000,000, the calculation would be:
Fixed Asset Turnover Ratio = $2,000,000 / $1,000,000 = 2
The resulting ratio shows that the business generates $2 of revenue for every $1 of investment in fixed assets.
Higher ratios indicate greater efficiency in using fixed assets to generate revenue. Lower ratios suggest fixed assets are underutilized.
Benchmarking and Evaluating the Calculated Ratio
Once you've calculated the fixed asset turnover ratio, compare it against industry benchmarks to evaluate performance. For example, a ratio of 2 might be above average for the retail industry but below average for manufacturing.
It's also useful to track the ratio over time to identify positive or negative trends. For instance, a decreasing ratio could indicate fixed assets need to be better utilized or that additional investments in fixed assets are required to support business growth.
Investigating Fluctuations in Fixed Asset Turnover
Analyze the reasons behind any significant changes in the fixed asset turnover ratio from year to year.
For example, a sharp increase in the ratio may be due to increased automation and better utilization of equipment. However, it could also result from inadequate investment in new fixed assets needed to sustain long-term growth.
Conversely, a decreasing ratio over time could signal that existing fixed assets have become less productive or obsolete. However, it may also reflect a purposeful shift toward more capital-intensive activities supported by major new fixed asset investments.
Monitoring trends and investigating shifts in the ratio helps uncover issues affecting operational efficiency, capital allocation decisions, and strategic direction.
Strategies for Improving Fixed Asset Turnover
With the fixed asset turnover ratio on hand, businesses can develop data-driven strategies to improve fixed asset performance.
Analyzing Individual Asset Performance
To identify underperforming assets, calculate turnover ratios for each major fixed asset or asset category. Assess whether revenue generated per dollar of net fixed assets meets expectations given the type of asset. Rank assets by turnover ratio to quickly spot the worst and best performers. Dig deeper into low turnover assets to understand root causes, such as inadequate utilization, frequent downtime, or insufficient supporting resources.
Measuring the Impact of Asset Acquisitions on Turnover
When acquiring new fixed assets like equipment or buildings, estimate the impact on turnover ratio. Will projected revenue from the asset justify the capital outlay over a reasonable payback period? How might new assets lift or dilute overall turnover? Build turnover impact into ROI projections and capital budgeting decisions. Also, track actual turnover vs. estimates over time to evaluate success of major investments.
Enhancing Asset Utilization to Maximize Revenue
Look for ways to increase output and revenue from existing production assets before large capital outlays. For example:
- Identify bottlenecks limiting asset utilization like inadequate staffing or downtime.
- Extend operating hours to maximize runtime.
- Balance production across under- and over-utilized equipment.
- Upgrade ancillary resources like power or logistics.
A small boost in utilization magnified across assets can drive major turnover ratio improvements.
Conclusion: Leveraging QuickBooks for Effective Asset Management
Calculating fixed asset turnover ratios in QuickBooks provides data to maximize revenue from existing assets. With some analysis, businesses can identify opportunities to optimize fixed asset usage.
Recap of Fixed Asset Turnover Ratio Analysis
The key takeaways are:
- Fixed asset turnover ratio indicates revenue generating efficiency
- QuickBooks enables easy ratio calculation
- The ratio facilitates data-driven asset management decisions
Future Steps for Asset Management with QuickBooks
Businesses should start evaluating the ratio quarterly, comparing it period-over-period and against industry standards. This will inform data-driven decisions to:
- Identify underperforming assets
- Reallocate budgets to assets with higher returns
- Acquire or dispose assets strategically
- Optimize asset usage for growth
Regular ratio analysis unlocks asset productivity insights for smarter management. QuickBooks empowers even small businesses to make data-driven decisions, driving efficiency.
