The saying “you don’t know where you’re going unless you know where you’ve been” is ever true for most companies. Most managers and business owners understand the need to improve on their current performance, but many also have difficulty knowing how to measure their efforts.
Organizations which utilize a variety of assets to help them meet their customer and client needs can feel even more overwhelmed when it comes to evaluating asset performance. Without a system in place, the entire process can feel overwhelming, tedious, and sometimes pointless.
If you find yourself in a similar predicament, all is not lost. Calculating fixed-asset turnover can help you know exactly how well your company is performing. Using a preset ratio, you can accurately measure how your business generates sales from your investments. You’ll also be able to tell how well you’ve taken advantage of your assets, and how those assets are helping you generate revenue.
The ratio is most effective in manufacturing companies who purchase a lot of equipment. Significant purchases need to be monitored over the years to tell if the initial investment was worth the cost. Manufacturers want to optimize efficiency and get as much profit for as little investment as possible.
This calculation is not meant to be used in all companies. Those who have less physical assets and goods should not become too attached to the results of the ratio. However, manufacturing industries and other companies who produce a large volume of goods can benefit from implementing the ratio in their workplace.
The fixed-asset turnover ratio, according to Investopedia, is calculated as follows:
Net Sales / Net Property, Plan, and Equipment = Fixed-Asset Turnover
Higher ratios indicate better management efficiency. Lower ratios can indicate an over-investment in fixed assets or a problem in sales. Comparing your ratio to that of another company will not help you improve. Other companies have different assets, performance, and output, so comparing yourself to them would be unproductive.
The best way to discern improvement or regression is to keep detailed and frequent records of your company’s overall fixed-asset turnover. Charting your ratio results over time will give you a more specific idea of how your company is performing than profit reports alone.
Because the fixed-asset turnover ratio is complicated and involves a lot of different parts, trying to record past and present ratios by hand can introduce several problems.
Instead of navigating through manual errors, use Asset Panda to avoid gaps in your data. Our in the cloud database means you won’t have to wonder where previous ratio records ended up. Other record keeping software programs require you to go back to the specific machine where the records are stored, and when you are working in a large factory, that can be difficult. With Asset Panda, you can access asset records and ratios of any part of your company where ever you can connect to the internet.
We designed our platform to be flexible, so as to meet the specific needs of each business. You won’t have to spend a large amount of time learning the software. We know you have better things to do than to learn our software, so we made it as intuitive as possible.
Want to see how Asset Panda can help you track fixed-asset turnover? Take a free guided tour today!