FIXED ASSETS RATIO - Accounts and Finance for Managers

Fixed Assets to Long term Funds ratio Interpretation

The ratio establishes the relationship in between the fixed assets and long term source of funds. Whatever the source of long term funds raised should be used for the acquisition of long term assets; it means that the total volume of fixed assets should be equivalent to the volume of long term funds i.e. , the ratio should be equal to 1

Fixed Assets Ratio= (share holders'funds Outsiders'funds/ Net Fixed Assets)


If the ratio is lesser than one means that the firm made use of the short term fund for the acquisition of long term assets. If the ratio is greater than one means that the acquired fixed assets are lesser in quantum than that of the long term funds raised for the purpose. In other words, the firm makes use of the excessive funds for the built of current assets.


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