The reinvestment ratio (sometimes referred to as the replenishment ratio) compares Capex to depreciation. A high ratio would suggest that much of the asset’s life has already been used, and the business faces an “ageing asset base”, which will require investment.Īverage Age Ratio = Accumulated depreciation / Gross PP&E Reinvestment Ratio By measuring accumulated depreciation relative to the gross value of the asset, we can see how “old” the asset is as a percentage of its total life. The average age ratio appraises the age of the asset (in this case, PP&E) and shows the average age of assets. This pattern of continuous reinvestment of retained earnings year after year is what drives company growth andĬapex Ratio = Capital expenditures / Sales Average Age of PP&E If a company continues to invest in resources through increase in capital expenditure, then we would expect to see an increase in sales the future. An increase in this ratio overtime would suggest future growth. The capex ratio measures investments in PP&E relative to company sales. The ratio is lower for asset-intensive industries such as telecommunications or utilities.įixed Asset Turnover = Sales / Net fixed assets Capex Ratio

The ideal asset turnover ratio varies by industry. Analysts should keep an eye on any significant asset purchases or disposals during a year as these can impact the asset turnover ratio. A high asset turnover ratio indicates greater efficiency to generate sales from fixed assets. It assesses whether a company is investing wisely in its assets.

This ratio measures the efficiency of a company’s PP&E in generating sales. It indicates whether depreciating assets are being replaced.įixed Asset Ratios – Explained Fixed Asset Turnover The reinvestment ratio (sometimes referred to as the replenishment ratio) compares capex to depreciation.A high ratio suggests the business has an “ageing asset base” The average age ratio appraises the age of the asset base (in this case PP&E) and shows the average age of assets.An increase in this ratio over time may suggest future growth. The Capex ratio measures investments relative to company sales.A higher fixed asset turnover indicates greater efficiency in generating sales from fixed assets. Fixed asset turnover measures the efficiency of PP&E in generating sales.Four commonly used asset ratios are: Fixed asset turnover, Capex ratio, the average age of PP&E, and the reinvestment ratio.