Question: Are there any vital signs in connection with property and equipment that a decision maker might
calculate to help in evaluating the financial health of a business?
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Answer: Ratios and computed amounts are not as common with noncurrent assets as has been seen with current
assets. However, the fixed asset turnover indicates the efficiency by which a company uses its property and
equipment to generate sales revenues. If a company has large amounts reported for various fixed assets but fails
to create high revenue balances, the ability of management to make good use of those assets has to be questioned.
This figure is calculated by taking net sales for a period and dividing it by the average net book value of the
company’s property and equipment (fixed assets). For example, a company with $1 million reported for these
assets at the beginning of the year but $1.2 million at the end of the year that is able to generate $6.16 million in
net sales has a fixed asset turnover of 5.6 times per year. The average of the fixed assets for this period is $1.1