Lesson 7 of 8 · All lessons in this module
- Intangible assets: definition, purchase and business combinations
- Internally developed intangibles and capitalising versus expensingVideo lesson
- Impairment of PPE and intangiblesVideo lesson
- Assets held for sale and impairment reversals
- Derecognition: sale, abandonment, exchange and spin-offVideo lesson
- Disclosures for PPE and intangible assets
- Fixed asset turnover, asset age and reinvestmentVideo lesson
- Integrated cases: a purchase price allocation and the PPE note
Lesson 7 of 8 · 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.
Unlock this lesson free for 7 days
Create a free account to get 7 days free: every lesson, video and flashcard, and the question bank. No card needed.