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Fixed Assets Test
Source:
Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order
it here)
One of the general tests applied
in analyzing the investment position of securities.
The depreciated value of fixed assets (land, buildings, equipment,
etc.) should normally be substantially in excess of the funded debt outstanding.
Even the railroads, which are allegedly overcapitalized, compare
favorably on this test. Net
unmatured funded debt of railroads totals about 30% of investment in road
and equipment, which means there is over $3.30 invested in road and equipment
for every dollar of funded debt.
This test is also
computed on the basis of total capitalization (funded debt and capital
stock) to the net depreciated value of fixed assets.
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