EX 10-24 Fixed asset turnover ratio

The following table shows the revenue and average net fixed assets (in millions) for a recent fiscal year for Best Buy and RadioShack:


Revenue
Average Net
Fixed Assets
Best Buy $50,272 $3,947
RadioShack 4,473 278



a. Compute the fixed asset turnover for each company. Round to two decimal places.
b. Which company uses its fixed assets more efficiently? Explain.


Answer:
a.
Best Buy: 12.74 ($50,272 ÷ $3,947)
RadioShack: 16.09 ($4,473 ÷ $278)

b. RadioShack’s fixed asset turnover ratio of 16.09 is higher than Best Buy’s fixed asset turnover ratio of 12.74. Thus, RadioShack is generating $3.35 ($16.09 – $12.74) more revenue for each dollar of fixed assets than is Best Buy. On this basis, RadioShack is managing its fixed assets more efficiently than is Best Buy.