Lesson 7 of 7 · 15 min
Fixed asset turnover, asset age and reinvestment
Dividing the PPE note's cost, accumulated depreciation and net amounts by annual depreciation estimates how long assets last, how old they are and how soon they need replacing.
In short
- Fixed asset turnover = revenue ÷ average net PPE; higher usually means more efficient use of fixed assets.
- Estimated total useful life = historical cost ÷ annual depreciation.
- Estimated average age = accumulated depreciation ÷ annual depreciation.
- Estimated remaining life = net PPE ÷ annual depreciation; age + remaining life = total life. Exclude land where possible.
- Capex ÷ depreciation above 1 suggests the company is replacing capacity faster than it wears out. Depreciation method choices (and revaluation) change these ratios and the profit trend.
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