Turnover is the concept which calculates how quickly a business conducts its operations. In other words, it’s mostly used to understand how quickly a company collects cash from accounts receivable or how fast the company sells its inventory in a certain period. This is different to profit, which is a measure of earnings.
Understanding how well your business is doing might not be easy. However, knowing your business turnover helps to get a good idea of the situation. It’s an important measure of your business’s performance. Knowing your this figure is useful throughout the whole life of your business. For example, to plan and secure investments, to measure performance and to value your company if you plan to sell.
On the other hand, there are also a few other potential definitions that don’t refer directly to your finances. For example, employee turnover, which measures the number of employees that leave a business within a specific period. Accounts receivable turnover, which represents the total dollar amount of unpaid customer invoices at any point in time. Inventory or Sales turnover which controls the amount of products and helps investors determine the level of risk they will face if investing.
It’s relatively straightforward to work out your figure manually, generally over a year. in addition, there are many online calculators to help out and do it even quicker.
- to work out gross profit, deduct the cost of your sales from your turnover
- to work out net profit, take your gross profit and deduct all other expenses (and tax liabilities)