Fixed assets

Examples of Fixed assets in the following topics:

• Fixed Assets Turnover Ratio

  • Fixed-asset turnover is the ratio of sales to value of fixed assets, indicating how well the business uses fixed assets to generate sales.
  • In most cases, only tangible assets are referred to as fixed.
  • Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet).
  • Fixed asset turnover = Net sales / Average net fixed assets
  • Fixed-asset turnover indicates how well the business is using its fixed assets to generate sales.

• Preparation of the Balance Sheet

  • Fixed assets are the assets that produce revenues.
  • Of course, fixed assets will vary considerably and depend on the business type (such as service or manufacturing), size, and market.
  • All fixed assets (except land) are shown on the balance sheet at original (or historic) cost, minus any depreciation.
  • Like the other fixed assets on the balance sheet, machineryand equipment will be valued at the original cost minus depreciation.
  • "Other assets" is a category of fixed assets.

• Noncash Items

  • Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is an accounting term for assets and property.
  • Unlike current assets such as cash accounts receivable, PP&E are not very liquid.
  • PP&E are often considered fixed assets: they are expected to have relatively long life, and are not easily changed into another asset .
  • For example, an asset worth $100,000 in year 1 may have a depreciation expense of $10,000, so it appears as an asset worth $90,000 in year 2.
  • Examples of intangible assets include copyrights, patents, and trademarks.

• Total Assets Turnover Ratio

  • Total asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.
  • Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
  • Total assets turnover = Net sales revenue / Average total assets
  • Tangible assets contain various subclasses, including current assets and fixed assets.
  • Current assets include inventory, while fixed assets include such items as buildings and equipment.

• Components of the Balance Sheet

  • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
  • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
  • Assets have value because a business can use or exchange them to produce the services or products of the business.
  • Generally, sales growth, whether rapid or slow, dictates a larger asset base - higher levels of inventory, receivables, and fixed assets (plant, property, and equipment).
  • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

• Total Debt to Total Assets

  • The debt ratio is expressed as Total debt / Total assets.
  • It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill').
  • Total liabilities divided by total assets.
  • The debt/asset ratio shows the proportion of a company's assets which are financed through debt.
  • If the ratio is less than 0.5, most of the company's assets are financed through equity.

• Liquidation Preference

  • After the removal of all assets which are subject to retention of title arrangements, fixed security, or are otherwise subject to proprietary claims of others, the liquidator will pay the claims against the company's assets.
  • In most legal systems, only fixed security takes precedence over all claims.
  • After the removal of all assets which are subject to retention of title arrangements, fixed security, or are otherwise subject to proprietary claims of others, the liquidator will pay the claims against the company's assets.
  • Stock may be preferred as to assets, dividends, or both.
  • Unclaimed assets will usually vest in the state as bona vacantia.

• Depreciation

  • Depreciation refers to the allocation of the cost of assets to periods in which the assets are used.
  • Several standard methods of computing depreciation expense may be used, such as fixed percentage, straight line, and declining balance methods.
  • Generally this involves four criteria: cost of the asset, expected salvage value (residual value of the asset), estimated useful life of the asset, and a method of apportioning the cost over such life.
  • This may be a more realistic reflection of an asset's actual expected benefit from the use of the asset: many assets are most useful when they are new.
  • Under this method the book value is multiplied by a fixed rate.

• Depreciation

  • Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation), and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
  • Any business or income producing activity using tangible assets incurs costs related to those assets.
  • The costs are allocated in a rational and systematic manner as a depreciation expense to each period in which the asset is used, beginning when the asset is placed in service.
  • the expected salvage value, also known as residual value of the asset
  • The cost of an asset so allocated is the difference between the amount paid for the asset and the salvage value.

• Relationships between ROA, ROE, and Growth

  • Return on assets shows how profitable a company's assets are in generating revenue.
  • Return on assets is equal to net income divided by total assets.
  • "Capital intensity" is the term for the amount of fixed or real capital present in relation to other factors of production, especially labor.
  • Return on assets is equal to net income divided by total assets.
  • Discuss the different uses of the Return on Assets and Return on Assets ratios