FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The major fixed assets for each business include aircraft

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

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?

c.  Interpret the meaning of the ratio for the more efficient company.

Answer:

a. Fixed Asset Turnover Ratio = =

 2.3

UPS: = 3.2

FedEx: $

47,453

$20,213

$58,363

$18,317

Sales

Average Book Value of Fixed Assets

b. The ratios show that UPS is 39% more efficient at using its fixed assets than 

FedEx [(3.2 – 2.3) ÷ 2.3].   

c. The fixed asset turnover is a measure of how efficiently revenue is generated from

underlying fixed assets. In the case of UPS, the fixed assets represent all fixed assets

necessary to deliver packages from one location to another. These include aircraft,

trucks, sorting and handling facilities, and information technology. For every dollar of 

these fixed assets, UPS is able to generate $3.20 in sales. The fixed asset turnover

ratio will be influenced by the degree these assets are utilized to their optimal 

capacity. So, for example, optimally filled planes, trucks, and sorting centers will 

cause the fixed asset turnover ratio to improve.