Fixed assets are valuable for a variety of reasons, and one of those reasons is that they’re able to turn a quick profit. As your inventory grows along with your business, keeping track of all your fixed asset revenue can get tough. It’s important to use your assets to their full potential, but it’s hard to know if you’re on the right track.
That’s where Fixed Assets Turnover (FAT) can be greatly beneficial — calculating this formula gives you an overview of how efficiently you’ve utilized your fixed assets to generate sales. If you have a high turnover rate, you know you’re on the right track.
Like with many asset management practices, having a detailed record of all your fixed assets is important before calculating FAT. BlueTally, a cloud-based management software, allows you to quickly document this information into a comprehensive asset register for easy viewing.
Now without further ado, let’s get into the basics of Fixed Assets Turnover.
What is Fixed Assets Turnover?
Fixed Assets Turnover (FAT) is a ratio used to measure a company’s ability to generate sales using their fixed asset investments. You essentially compare your income to your fixed asset balance to determine whether you’ve made a profit. This efficiency ratio is calculated over a yearly period to get a more accurate look at your net sales.
Net Fixed Assets
Your net sales are separated according to net fixed assets, which represent the total purchase price of your fixed assets minus depreciation. You can calculate net fixed assets using the following formula:
Net Fixed Assets = Total Fixed Asset Price — Accumulated Depreciation
Or, you could go a step further and take into account any upgrades you’ve made to your fixed assets, as well as their liabilities:
Net Fixed Assets = (Total Fixed Asset Price + Capital Improvements) — (Accumulated Depreciation + Liabilities)
Fixed Assets Turnover Ratio
A higher ratio is indicative of efficient asset usage — this means you’ve effectively used your fixed assets to accumulate revenue. You can calculate FAT using this formula ( / refers to division):
Fixed Assets Turnover = Net Sales / Average Fixed Assets
Net Sales = Sum of your sales — (Returns + Allowances + Discounts)
Average Fixed Assets = (NABB — Ending Balance) / 2
NABB = Net Fixed Assets’ Beginning Balance
Examples of Fixed Assets
Fixed assets are any physical long-term (over a year) objects utilized by your business, which can include:
- IT Hardware (e.g. computers, tablets, etc.)
- Software
- Office Equipment (e.g. printer)
- Machinery or Tools
When is the Right Time to Turnover Fixed Assets?
Aside from the FAT ratio, turnover (in terms of business) can also refer to gross revenue obtained via selling inventory, which can include fixed assets.
Most assets outgrow their usefulness after long periods of time, so it’s important to know when to dispose of them.
When a fixed asset breaks to the point of uselessness, it may be time to discard it. Depreciate your fixed assets and calculate the salvage value to see if it’s worth selling for parts.
If it no Longer Meets Company Standards
If a fixed asset starts becoming a burden due to constant failures and downtime, it may be too costly and troublesome to maintain. Whenever a piece of hardware stops working, your operations are forced to a halt, so it’s best to get rid of such assets.
If it is Obsolete
As technology advances, some assets end up becoming obsolete. If there are better alternatives for your business, it could be worth selling off your old assets in favor of ones that meet current industry standards.
Why is Turning Over Depreciated Fixed Assets Important?
Greater Customer Satisfaction and Customer Retention
When fixed assets start depreciating in value, it’s usually in part due to damages they’ve incurred over time. Damaged assets are more likely to experience technical issues, which can reduce customer satisfaction, or the efficiency of company operations. Turning them over for profit allows you to avoid such problems.
Less Likelihood of Compliance or Safety Problems
Turning over fixed assets allows you to purchase newer upgraded equipment. As assets get updated, their reliability can improve, reducing the risk of failure and safety problems. Start tracking your equipment to ensure no incidents occur.
Increased Profitability
Selling fixed assets keeps you from paying for maintenance — especially if they’re no longer worth keeping. This allows you to focus on improving your asset management for working equipment in order to generate more income.
How to Skillfully Oversee Fixed Assets Turnover
1. Keep Track of how Many Fixed Assets you Have
You should always keep track of your fixed assets in order to avoid mishaps, such as misplacing equipment or buying too much of one asset. Monitor your inventory closely and conduct regular asset audits to ensure your numbers are correct.
There are many aspects to tidy asset management, but creating a comprehensive asset register is essential. Here at BlueTally, we provide you with an easy-to-use management system where you can seamlessly log in all your fixed assets without missing a detail.
Key Features
Asset Audit & Maintenances: Schedule upcoming audits so staff members can easily track them. You can do the same with asset maintenance and get notified when maintenance is overdue. Upcoming audits are displayed on the dashboard, where staff can view their due date, relevant assets, and other details.
Assign Assets: Assign assets to a specific location or employee by checking it out — simply add the relevant information, including the checkout date and return date, for easy tracking. You can also include a photo of the asset to document its condition prior to moving it.
Asset Barcodes: Easily track your equipment by giving each fixed asset its own ID number and barcode. Print out the barcodes and attach them to their respective asset — scanning the barcodes should bring up information from your asset register.
Custom Fields & Status Labels: Create custom statuses or fields if necessary — statuses tell you the condition of each fixed asset, such as ‘being repaired’ or ‘ready to deploy’. Fields, on the other hand, make up an asset’s details. If you require more categories to fill in, just make your own.
Visit our live demo site if you’d like to test out these features yourself:
2. Know the Fixed Assets' Current Conditions
During your asset reviews, make note of the current state of your fixed assets.
- Are they functional?
- Is there any damage?
- Do they require repairs or upgrades?
- How old are they and does it show?
Assessing their condition helps you identify when maintenance needs to be scheduled.
3. Identify the Assets That Need to be Turned Over
Now that you’ve reviewed their condition, it’s time to determine which fixed assets have outlived their use and should be disposed of. As a general rule, if the cost of repairs is greater than the cost of replacement, it’s more beneficial for you to discard the asset.
For example, if a piece of equipment tends to break down a lot, the cost of maintenance can become quite high. In this case, it would be more cost-efficient to purchase a better piece of equipment which doesn’t constantly malfunction.
4. Withdraw the Identified Assets
Withdraw every asset you plan to dispose of. This means taking hardware offline and moving equipment into storage. Once you’ve decided how to get rid of them, send them off and remove them from your balance sheet.
5. Log all the Relevant Activities
Finally, it’s time to document and oversee the disposal process. With the help of BlueTally, a cloud-based asset management software, you can track your assets’ locations and update their information online. BlueTally acts as a centralized platform in order to create full visibility across your team.
Keep an eye on what’s happening: Our dashboard gives you a quick overview of recent activity logs, asset statuses, and more for easy monitoring.
Monitor Checkouts & Changelogs: Keep track of where your assets are by viewing their changelogs and checkout history. You can see who currently has the asset, where it is, and any changes to its condition.
Integrate With Powerful Tools: Use BlueTally in conjunction with various tools, such as Slack, Microsoft Teams, Okta, and many more. Our flexible API also allows you to integrate with your existing workflows.
View Asset Depreciation: When deciding to sell your fixed assets, it’s important to get a sense of their depreciating value first. BlueTally automatically calculates this for you to save you the trouble. Get a full overview of your asset value by looking at auto-generated depreciation reports.
Conclusion
When handling multiple assets, it’s hard to get a clear gauge on whether you’re using them to their full potential. That’s why it’s important to calculate your Fixed Assets Turnover ratio to see how efficiently you’re managing your assets.
FAT ratios are naturally affected by your generated revenue — if any fixed assets turn out to be more of a hindrance than a help, it’s worth discarding them for a better alternative. When disposing of your assets, keeping track of them is vital to avoid any mishaps.
With the aid of BlueTally, you can easily monitor the location of your assets and get notified of any changes that occur. Get started for free today by signing up, or check out our live demo to see how we can help streamline your workflows.
