Fixed Asset Turnover Ratio

What it is

The Fixed Asset Turnover (FAT) ratio measures how efficiently a company uses its fixed assets—primarily property, plant, and equipment (PP&E)—to generate net sales. A higher FAT indicates more effective use of fixed-asset investments to produce revenue.

Important: fixed assets should be measured net of accumulated depreciation.

Formula

FAT = Net Sales / Average Fixed Assets

Where:
* Net Sales = Gross sales − Returns and allowances
* Average Fixed Assets = (Beginning Fixed Assets + Ending Fixed Assets) / 2

How to interpret it

• A higher FAT means the company generates more sales per dollar of fixed assets, suggesting efficient use of investments in PP&E.
• Compare the ratio to:
• The company’s own historical FAT values (trend analysis)
• Peer companies and industry averages (cross-sectional analysis)
• Expect large differences across industries: heavy manufacturers typically have much larger fixed-asset bases than technology or service firms, so comparisons should be industry-specific.

FAT vs. Asset Turnover Ratio

• FAT focuses only on fixed assets (PP&E).
• Asset Turnover uses total assets (all asset categories).
• Asset Turnover will usually be lower than FAT because the denominator (total assets) is larger.
• Manufacturers often prefer FAT to evaluate capital investment efficiency; retailers or service firms may place less emphasis on FAT.

Limitations and caveats

• FAT looks only at sales relative to fixed assets; it does not account for profitability, expenses, or cash flow timing.
• Cyclical businesses can show volatile FATs—analyze multiple periods to identify trends.
• Management can improve FAT by outsourcing production (reducing fixed assets) without improving overall financial health.
• Differences in accounting policies (depreciation methods, asset capitalization thresholds) can affect comparability across firms.

Example

Simplified example using rounded figures:
* Beginning fixed assets: $160.3 billion
Ending fixed assets: $177.2 billion
Average fixed assets = (160.3 + 177.2) / 2 = $168.75 billion
Net sales for the period: $364.8 billion
FAT = 364.8 / 168.75 ≈ 2.16

Interpretation: For each dollar of fixed assets, the company generated about $2.16 of net sales.

What is a “good” FAT?

A “good” FAT depends on industry norms and competitors. A useful benchmark is a FAT higher than the industry average and higher than key competitors. The absolute value has little meaning without context.

Bottom line

The Fixed Asset Turnover ratio is a straightforward metric for assessing how effectively a company uses its fixed assets to produce sales. Use FAT as a comparative tool—over time and against peers—and combine it with other ratios and financial analysis to assess profitability and operational health.