Fixed Asset Turnover is a Timely Topic
Given our mobile landscape, fixed asset turnover has become an increasingly pressing subject. Strategy Analytics has predicted that by 2022, 1.87 billion people, or 42.5 percent of the global workforce, will be mobile employees. That’s not difficult to imagine right now, as many of us continue to work from home until the worst of the coronavirus is behind us. In its Global Mobile Workforce Forecast Update 2016-2022, Strategy Analytics shares that North America and Western Europe are leading the increasing shift toward mobility, driven by such factors as globalization and mobile technology and applications advancements.
Here’s another interesting prediction. According to Gartner, 30 percent of organizations will gain a competitive advantage from the workforce’s capability to exploit emerging technology: “In a post-COVID-19 era, it is not far to imagine that digital workspaces will help build digital dexterity, improve productivity, boost employee experience and develop ‘esprit de corps’ among remote workers that struggle between home and work.” With more technology use comes more fixed asset turnover.
Why Fixed Asset Tracking Matters
Regardless of the size or nature of the company, IT assets are likely to be among its most significant investments. We know there’s planned obsolescence associated with any technology asset, but obviously, companies want to maximize the useful life of each of those items. That means conducting regular audits, keeping up with routine preventive maintenance, tracking depreciation, and planning equipment refresh schedules, among many other moving parts. All of this mobility requires careful tracking and management.
What is The "Fixed Asset Turnover" Ratio?
Fixed asset turnover, or FAT, is a company’s sales ratio to its fixed assets' value. It measures how well the company uses its fixed assets to generate sales. A high ratio suggests that a company uses its fixed assets efficiently to generate sales, while a low ratio indicates the opposite scenario. Investors use fixed asset turnover to determine their return on investment. In contrast, creditors use the ratio to estimate how well a company can repay loans they’ve obtained to purchase equipment.
Efficient fixed asset use is far less likely when companies rely on manual asset tracking methods. Employees may overlook details or lose track of assets. Handwriting barcodes into a log or manually keying them into an Excel spreadsheet is almost sure to result in human error. Depreciation is also challenging to track and manage using such methods. Routine maintenance may fall by the wayside, resulting in expensive repairs, slowdowns in productivity, and even increased vulnerability to security breaches.
The Dangers of Having a High Fixed Asset Turnover Ratio
There’s one caveat, though. In a post for Chron.com (“What Does It Mean When a Company Has a High Fixed-Asset Turnover Ratio?”), writer Bryan Keythman explains that when a company’s fixed assets are old and have a lot of accumulated depreciation, the company’s balance sheet shows low net-fixed assets, which raises its fixed asset turnover ratio. An investor or creditor might view that high ratio as attractive – after all, it suggests that the company is running its business efficiently.
However, those aging fixed assets will have to be replaced – and when the company replaces them, the fixed asset turnover ratio will decrease. The bottom line is that the devil is in the details.
Asset Panda's Fixed Asset Tracking Software
With a reliable fixed asset tracking system, companies can save time and money while maximizing the useful lives of each of their fixed assets.
Asset Panda gives clients peace of mind by taking a time-consuming and error-prone task and automating it through a powerful yet intuitive platform. Our mobile app offers clients a robust selection of customizable features, including custom maintenance reminders.
Give Asset Panda's fixed asset management software a try with a free 14-day trial (no credit card required)! You’ll receive full access to user guides, video tutorials, free mobile apps, and call-in and live chat support from our fantastic Asset Panda support team.