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 $45,015 $3,740 RadioShack 4,225 312 

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: 12.04 ($45,015/$3,740)
  RadioShack: 13.54 ($4,225/$312)

b. RadioShack’s fixed asset turnover ratio of 13.54 is higher than Best Buy’s fixed asset turnover ratio of 12.04. Thus, RadioShack is generating $1.50 ($13.54 – $12.04) more revenue for each dollar of fixed assets than is Best Buy. On this basis, RadioShack is managing its fixed assets slightly more  efficiently than is Best Buy.

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