Purpose
Using your publicly traded manufacturing company, you will explore depreciation.
Task
- Identify the different depreciation methods used by the company.
The company’s financial statements will disclose the depreciation methods used for each class of fixed assets. For example, the company may use the straight-line method for buildings and equipment, and the units-of-production method for machinery.
- The cost of the asset, salvage value, and useful life can be found in the company’s financial statements or its annual report. Enter a 0 value and a note for all values that cannot be found in the SEC 10-K.
- Calculate the fixed-asset turnover ratio, using the following formula:
Fixed-asset turnover ratio = Net sales / Average fixed assets
Net sales can be found on the company’s income statement, and average fixed assets can be calculated by averaging the beginning and ending balances of fixed assets on the company’s balance sheet. Use this to assist you in your calculations.
Analysis:
Once you have calculated depreciation expense and the fixed-asset turnover ratio, you can analyze the results to answer questions such as:
- Which depreciation method does the company use for each class of fixed assets?
- How much depreciation expense did the company incur in the most recent year?
- How efficient is the company at using its fixed assets to generate sales?
- Has the company’s fixed-asset turnover ratio changed over time?
Submission
Submit both the Excel sheet with your calculations as well as an executive summary with the analysis.
Criteria for Success
In your written executive summary, you can also compare the company’s depreciation expense and fixed-asset turnover ratio to those of its peers in the same industry. This can help you to identify any potential areas for improvement.
You may review an example of the assignment by downloading the .
The company I chose was Advanced Micro Devices, Inc. (AMD).
Requirements: 2 pages
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