Question

FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The major fixed assets for each business include aircraft, sorting and handling facilities, delivery vehicles, and information technology. The sales and average book value of fixed assets reported on recent financial statements for each company were as follows:
FedEx UPS Sales (in millions) $47,453 $58,363
Average book value of fixed assets (in millions) 20,213 18,317
Required:
a. Compute the fixed asset turnover ratio for each company. Round to one decimal place.
b. Which company appears more efficient in using fixed assets?

Answer 1

Answer:

a. FedEx = 2.3 , UPS = 3.2

b. UPS appears to be more efficient in using fixed assets as it is able to generate a sales of $3.20 for every $1 invested in assets as against a sale of $2.30 for every $1 invested in asset generated by FedEx

Explanation:

Asset turnover is the ratio of revenue to average assets of a company. It is a financial indicator that shows how much revenue a company generates in an accounting period for each  $1 invested in assets (fixed asset in this case).

Mathematically,

Fixed asset turnover = sales/average fixed asset

The fixed asset turnover ratio for;

FedEx = $47,453/$20,213

= 2.3

UPS = $58,363/$18,317

= 3.2