A fixed asset coverage ratio is a formula that determines a firm's ability to uphold its debt payments and contracts with all of its fixed assets (cash, property, et cetera), minus any outstanding liabilities. When calculated properly, a fixed asset coverage ratio demonstrates how well the cash and properties owned by a company (also known as fixed assets) are being used, by comparing them with the total number of dollars raised through sales at that company.
This type of fixed asset coverage ratio is higher when business is going well and resources are being used appropriately; the ratio drops when performance is not as strong. In the fixed asset coverage ratio, the average is designed to track efficiency and to calculate exactly how many times fixed assets are being turned over within a specific time frame. For potential investors, bankers who give out corporate loans and lines or credit, or any other interested parties, this ratio can be a quick and simple way to test the viability and trustworthiness of a company.
Sometimes, the vital financial information found in an accurate fixed asset coverage ratio will not be publicly disclosed; instead, it may be used internally (by company management) to assess the health and growth of a corporation or smaller business. Often, financial analysts who have access to private sales and fixed asset information will use the ratio to assess the valuation of a company, in terms of tangible value; the fixed asset coverage ratio can be an extremely important indicator of the real value of publicly traded or private stocks, as well as a tool for projecting the future profits of a corporate entity.
This sort of formula may be calculated via accounting or mathematical computer programs; it may also be determined via a manual calculation. The fixed asset coverage ratio is usually used for business planning, financial projections, and other corporate purposes. A strong, positive fixed asset coverage ratio can be a powerful lure for prospective investors in a company.
This type of fixed asset coverage ratio is higher when business is going well and resources are being used appropriately; the ratio drops when performance is not as strong. In the fixed asset coverage ratio, the average is designed to track efficiency and to calculate exactly how many times fixed assets are being turned over within a specific time frame. For potential investors, bankers who give out corporate loans and lines or credit, or any other interested parties, this ratio can be a quick and simple way to test the viability and trustworthiness of a company.
Sometimes, the vital financial information found in an accurate fixed asset coverage ratio will not be publicly disclosed; instead, it may be used internally (by company management) to assess the health and growth of a corporation or smaller business. Often, financial analysts who have access to private sales and fixed asset information will use the ratio to assess the valuation of a company, in terms of tangible value; the fixed asset coverage ratio can be an extremely important indicator of the real value of publicly traded or private stocks, as well as a tool for projecting the future profits of a corporate entity.
This sort of formula may be calculated via accounting or mathematical computer programs; it may also be determined via a manual calculation. The fixed asset coverage ratio is usually used for business planning, financial projections, and other corporate purposes. A strong, positive fixed asset coverage ratio can be a powerful lure for prospective investors in a company.
