Question

Analyze Fixed Assets Tabor Industries is a technology company that operates in a highly competitive environment. In 2008, management had significantly curtailed its capital expenditures due to cash flow problems. Tabor reported the following information for 2011: Net fixed assets (beginning of year), $489,000 Net fixed assets (end of year), $505,000 Net sales, $1,065,000 Accumulated depreciation (end of year), $543,000 Depreciation expense, $110,000 An analyst reviewing Tabor's financial history noted that Tabor had previously reported fixed asset turnover ratios and average age of its assets as follows: During this time frame, the industry average fixed asset turnover ratio is 2.46 and the industry average age of assets is 1.79 years. Round your answers to two decimal places. 1. Compute Tabor's fixed asset turnover ratio for 2011. 2. Compute the average age of Tabor's fixed assets for 2011. years 3. Conceptual Connection: Comment on Tabor's fixed asset turnover ratios and the average age of the fixed assets.

Answer 1

1. Fixed Assets Turnover Ratio = Net Sales / Average Net Fixed Assets

Net Sales = $1065000

Average Net Fixed Assets = (Opening Net Fixed Assets + Closing Net Fixed Assets) / 2

Average Net Fixed Assets = ($489000 + $505000) / 2

Average Net Fixed Assets = $497000

Fixed Assets Turnover Ratio = 1065000 / 497000

Fixed Assets Turnover Ratio = 2.14

2. Average Age of Fixed Assets = Accumulated Depreciation / Current year Depreciation Expense

Average Age of Fixed Assets = 543000 / 110000

Average Age of Fixed Assets = 4.94 Years

3 COMMENT -

Tabor' Fixed Assets Turnover Ratio is 2.14 whereas Industry's average is 2.46. It means Tabor's Fixed Assets are generating less sales than Industry average. Hence, Tabor"s Fixed Assets Turnover Ratio is UNFAVORABLE.

Tabor's Average Age of Fixed Assets is 4.94 Years whereas the Industry's average is 1.79 Years. It means that life of Tabor's Fixed Assets is way better than the Industry. Hence, Tabor's Average Age of Fixed Assets is GOOD.