Which of the following best describes the Fixed Asset Turnover ratio?

The Fixed Asset Turnover ratio specifically measures how effectively a firm utilizes its fixed assets, such as property, plant, and equipment, to generate sales revenue. This ratio is calculated by taking the total sales revenue and dividing it by the net fixed assets. A higher ratio indicates that a company is generating more sales for each dollar invested in fixed assets, reflecting operational efficiency.

Understanding that fixed assets are crucial for production and service delivery, the ratio highlights the efficiency of capital usage in generating revenue. In contrast, other options pertain to different aspects of financial performance. For instance, one option discusses total assets, which encompasses both fixed and current assets, rather than focusing exclusively on fixed assets. Another option relates to the relationship between net income and total revenue, which deals with profitability ratios. Lastly, there is an option that focuses on inventory turnover, which concerns the efficiency of inventory management rather than fixed asset utilization. Therefore, the accurate description of the Fixed Asset Turnover ratio is its ability to illustrate how well a company uses its fixed assets to drive sales.