Verizon Communications is a major telecommunications company in the United States. Two recent balance sheets for Verizon disclosed

Verizon Communications is a major telecommunications company in the United States. Two recent balance sheets for Verizon disclosed the following information regarding fixed assets:










Year 2
(in millions)
Year 1
(in millions)
Plant, property, and equipment $211,655 $229,743
Less accumulated depreciation 123,944 137,758
$ 87,711 $ 91,985




Verizon’s revenue for Year 2 was $106,565 million. Assume the fixed asset turnover for the telecommunications industry averages approximately 1.10.

a. Determine Verizon’s fixed asset turnover ratio for Year 2. Round to two decimal places.
b. Interpret Verizon’s fixed asset turnover ratio.


Answer:










a. Fixed Asset Turnover Ratio = Revenue
Average Book Value of Fixed Assets
Fixed Asset Turnover Ratio = $106,565
($87,711 + $91,985) ÷ 2
Fixed Asset Turnover Ratio = 1.19






b. Verizon earns $1.19 revenue for every dollar of fixed assets. This is a low fixed asset turnover ratio, reflecting the high fixed asset intensity in a telecommunications company. The industry average fixed asset turnover ratio is slightly lower at 1.10. Thus, Verizon is using its fixed assets more efficiently than the industry as a whole.