Lesson 1 of 7
Two cyclicals, fifty times apart
Fixed asset turnover of 40.11 against 0.80, both computed from filed statements, and what a gap that size decides about a bad year at each company.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Fixed asset turnover is revenue divided by net property, plant and equipment, and it separates businesses more sharply than almost any other ratio.
- Two covered cyclical filers sit at 40.11 times and 0.80 times, a gap of about fifty.
- The gap is not a quality judgement. It decides what a bad year costs, which is a different question.
Both of the companies in this course are cyclical. Both sell into demand that swings. On the ratio that decides what a swing costs them, they could hardly be further apart.
Fixed asset turnover at two covered cyclical filers
- Toll Brothers, FY2025 · 10,967 / 27340.11x
- Micron, FY2025 · 37,378 / 46,5900.80x
The arithmetic
Toll Brothers: revenue of 10,966.7 million dollars in the fiscal year ended 31 October 2025, against net property, plant and equipment of 273.4 million. That is 40.11 times.
Micron: revenue of 37,378 million in the fiscal year ended 28 August 2025, against net property, plant and equipment of 46,590 million. That is 0.80 times.
Both are computed the same way from filed statements, and both are the figures the product stores.
What the gap is actually measuring
How much long-lived plant sits behind a dollar of sales. At the first filer, almost none: it buys land, builds houses on it and sells them, and the land is inventory rather than plant. At the second, a fabrication facility costing billions produces the output, and it exists whether or not anyone buys anything.
Note what the ratio is not measuring. It is not measuring how much capital the business uses in total. The first filer holds 10,678 million dollars of inventory, which is capital by any reasonable definition, and none of it is in this denominator. The distinction matters because inventory can be run down and a fabrication plant cannot.
Why this is not a quality judgement
High capital intensity is not a defect and low capital intensity is not a virtue. The capital-intensive business may earn extraordinary returns in good years precisely because the plant is hard to replicate, which is what the business models and moats course calls a barrier.
What the gap decides is narrower: what a bad year costs. A business whose costs are mostly the depreciation of assets already built cannot reduce those costs by selling less. A business whose costs are mostly land and materials bought per unit can. That is the subject of the next five lessons, and it is a question about the shape of the cost base rather than about the merit of either company.
Check yourself
What does fixed asset turnover measure?
- How much total capital a business uses
- How much long-lived plant sits behind a dollar of sales
- How quickly inventory is sold
Show the answer
Answer: B.
Inventory is not in the denominator. One of the two filers here holds 10,678 million dollars of it and still turns its fixed assets over forty times.One filer reports capital expenditure of 0.79 percent of revenue and the other 42.42 percent. What is that the flow version of?
- Operating margin
- The same capital intensity the stock measure shows, expressed as spending rather than as an asset base
- Inventory turnover
Show the answer
Answer: B.
A fifty-fold gap on the stock measure and a fifty-four-fold gap on the flow measure are the same fact seen twice.Why is a fifty-fold gap in capital intensity not a quality judgement?
- Because both companies are cyclical
- Because high capital intensity can be a barrier that produces high returns in good years; what it decides is what a bad year costs
- Because the ratio depends on the accounting for leases
Show the answer
Answer: B.
The question the gap answers is about the shape of the cost base, not about the merit of either business.Sources
- Toll Brothers, Inc., annual report on Form 10-K for the fiscal year ended 31 October 2025, accession 0000794170-25-000112, filed 19 December 2025, for revenue, net property, plant and equipment, inventory and capital expenditure.
- Micron Technology, Inc., annual report on Form 10-K for the fiscal year ended 28 August 2025, accession 0000723125-25-000028, filed 3 October 2025, for the same items.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- Fixed asset turnover is affected by the age of the asset base: an old, largely depreciated plant produces a higher ratio than an identical new one. The gap here is far too large to be explained that way, but at closer margins it often is.
- Net property, plant and equipment includes right-of-use assets for finance leases at one of these filers and not the other, which is one more reason a small difference in this ratio means little.
- Nothing here is a view on either company or on any security.