EX 10-23 Fixed asset turnover ratio

Verizon Communications is a major telecommunications company in the United States. Verizon’s balance sheet disclosed the following information regarding fixed assets:

Dec. 31, 2009 (in millions)
Dec. 31, 2008 (in millions) Plant, property, and equipment $228,518 $215,605 Less accumulated depreciation 137,052 129,059 $   91,466 $   86,546
Verizon’s revenue for 2009 was $107,808 million. The fixed asset turnover for the telecommunications industry averages 1.10. a. Determine Verizon’s fixed asset turnover ratio. Round to two decimal places. b. Interpret Verizon’s fixed asset turnover ratio.

Answer:


a. Fixed Asset Turnover Ratio = 
AssetsFixedofValueBookAverage Revenue
   
 Fixed Asset Turnover Ratio = 
$86,546)/2 + ($91,466 $107,808  
 Fixed Asset Turnover Ratio = 1.21   

b. Verizon earns $1.21 revenue for every dollar of fixed assets. This is a low fixed asset turnover ratio, reflecting the high fixed asset intensity in a telecommunications company. The industry average fixed asset turnover ratio is slightly lower at 1.10. Thus, Verizon is using its fixed assets slightly more  efficiently than the industry as a whole.

Popular posts from this blog

PR 9-2A Aging of receivables; estimating allowance for doubtful accounts

Image
Angler’s Dream Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Angler’s Dream prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2011: The following accounts were unintentionally omitted from the aging schedule: Customer                                            Due Date                        Balance  Antelope Sports & Flies                June 21, 2011                      $ 3,000  Big Hole Flies                               Aug. 30, 2011         ...
Read more

PR 10-5A Transactions for fixed assets, including sale

The following transactions, adjusting entries, and closing entries were completed by D. Hurd Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. 2010 Jan.  9. Purchased a used delivery truck for $30,000, paying cash. Mar. 17. Paid garage $400 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $6,000 for the truck. 2011 Jan.   2. Purchased a new truck for $48,000, paying cash. Aug   1. Sold the used truck for $12,500. (Record depreciation to date in 2011 for the truck.) Sept. 23. Paid garage $325 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $11,000 and an estimated life of fi ve years. 2012 July    1. Purchased a new truck for $52,000, paying cash. Oct.   ...
Read more

PR 9-1A Entries related to uncollectible accounts

Image
The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31: Feb.  17. Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible. Apr.  11. Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account. July  6. Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets. Nov. 20. Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account. Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, $6,700.          31. Based on an analysis of the $1,200,000 of accounts receivabl...
Read more