Question

How might the different ages of firms distort comparisons of their fixed assets turnover ratios?

Answer 1

Different ages of firm will be using their fixed asset differently and they will be generating different turnover using those assets so they will be trying to distort the comparison of their fixed asset turnover ratios according to their convenience which will be making them in an advantageous position.

Those company which are mostly in the growth stages will be using their assets aggressively in order to generate higher income because they will have to grow and exploit their assets to the maximum extent in order to extract the highest sales but their assets will also be subsequently higher because of lower depreciation and it will mean that their fixed asset turnover ratio would be lower

fixed asset turnover ratio of older companies will be higher because they will be using their assets for longer period of time and there would be lower value present in their books of accounts due to higher depreciation and hence their fixed asset turnover ratio will always look higher because of lower base of lower value of assets and hence the fixed asset turnover comparison is distorted.