What is Business Turnover? Meaning, Definition, and Importance
Running a business requires numerous considerations and metric measurements on a regular basis. With these calculations, you can understand your business performance and take adequate steps to improve the prospects. Business turnover is one of the most important and comprehensible metrics you must understand properly.
In the following sections, we will explain the turnover meaning in business, importance, types, and calculation.
What is Turnover?
Turnover is the amount of revenue or sales an organisation earns. The rate at which a company transforms its goods or services into cash flow depends on the turnover in a business. Therefore, turnover in business is crucial for checking a company's financial condition and future growth prospects.
What is Turnover Meaning in Business?
Understanding the definition of turnover in business is crucial, as it helps evaluate a company's performance and overall health. It refers to a company's total sales generated from its goods or services during a period. Conditions like sales volume, market demand, and pricing strategies significantly influence the market conditions, reflecting a company's growth and market competence.
Why is Business Turnover Important?
Business turnover is a powerful metric that indicates a company's financial standing. Read on to understand its importance in business.
Reflects Operational Efficiency: The turnover reflects a company’s operational efficiency to ensure smooth functioning.
Assesses Sales Performance: A high turnover in business indicates the company’s sales performance, as it sells its assets and turns them into revenue.
Ensures a Steady Cash Flow: It ensures a steady cash flow that helps a company to grow efficiently.
Helps Adjust Strategies: By calculating their business turnover, companies can identify loopholes and adjust strategies to improve.
Enhances Profitability: With this figure, a company can optimise its operations to enhance profitability.
Attracts Investors: A high turnover reflects a company's growth potential, attracting investors.
Indicates Financial Health: A turnover indicates a company’s financial health and stability.
Supports Long-Term Sustainability: With improved business operations, calculating the turnover supports the long-term sustainability of a company.
Read Also- Working Capital Turnover Ratio: Definition, Advantages, and Formula Calculation
Understanding Common Types of Business Turnovers
Now that you understand what is business turnover, let’s explore its four types that provide valuable insights into a company’s financial health:
Accounts Receivable Turnover: Indicates a company’s capacity to manage unpaid customer invoices during receivable turnover days
Inventory Turnover: Assesses a company’s efficiency in managing its inventory
Portfolio Turnover: Measures a company’s frequency of changing portfolio ownership in securities
Working Capital Turnover: Evaluates a company’s use of working capital for generating sales
Read Also- Most Important Business And Finance Terms To Know
How to Calculate Business Turnover?
Follow these steps to understand how to calculate turnover in a business:
Gather financial details
Choose a time frame
Add your total sales for the chosen period
Analyse the results to measure the company’s operational scale and financial performance
Here is an example:
If you sell 5,000 units annually for Rs 45 each, here is how to calculate turnover in a financial year:
5,000 units x Rs 45 = Rs 2,25,000
A similar formula also applies when calculating a month or quarter turnover.
Understanding the Difference Between Turnover and Revenue
While both revenue and turnover in a business indicate a company's capacity to earn money, they are different in the following aspects:
Parameter | Revenue | Turnover |
|---|---|---|
Meaning | Total amount of sales a company makes | Total income a company generates from its sales |
Impact | Affects a company’s profitability | Affects a company’s efficiency |
Ratios | Includes net profit, gross profit, and operating profit margin | Includes inventory, sales, assets, sales, accounts receivable and accounts payable turnover |
Types | Operating and non-operating | Inventory, portfolio, working capital, and accounts receivable |
Reporting | The first line of the item in an income statement | Helps understand the statement better |
Calculation | Total number of units sold multiplied by their cost | Total number of units sold during a period |
Read Also- What Is Business Loan? - Meaning, Benefits, & How to Apply?
Understanding the Difference Between Turnover and Profit
Although profit and business turnover meaning sound similar, they are different in the following aspects:
Parameter | Turnover | Profit |
|---|---|---|
Meaning | Refers to a company’s net sales | Refers to a company’s net residual income or net profit |
Importance | Makes an income statement’s top line | Makes an income statement’s bottom line |
Indication | Shows a product or service’s demands | Indicates if a company’s earnings are enough to fulfil its expenses |
How a Business Loan Can Increase Your Revenue Growth?
Here is how a Business Loan can increase your revenue growth:
Provides immediate funds to grab profitable opportunities
Finances business growth with a better setup
Lets a company hire better employees
Supports better inventory management
Builds working capital
Read Also- Get An Instant Business Loan. Find Out How?
How to Apply for Business Loan for Your Revenue Growth?
Here is how to apply for a Business Loan for revenue growth from Hero FinCorp:
Visit the Hero FinCorp website and reach the Business Loan application page
Fill in an application form and upload the required documents
Enter the Business Loan amount and select repayment tenure
If you fulfil the eligibility criteria, you will receive a reference number
A representative will contact you for further details
Conclusion
Understanding the meaning of turnover in a business is essential to assess its sales performance. Learning how to calculate turnover helps enhance operations and improve financial health. Secure a Business Loan from Hero FinCorp to support growth by managing and expanding operations effectively. Such a proactive approach helps a business succeed and stay competitive in the market.
Frequently Asked Questions
1. Is turnover the same as profit?
Turnover and profit are different in many aspects. Turnover refers to a company's net sales, while profit refers to a company's net residual income or net profit.
2. Is turnover the total income?
Business turnover is the same as total income. It represents the total revenue generation from sales during a period before deducting any expenses.
3. How do you measure turnover?
You can measure the turnover by adding your total sales for the chosen period.
4. What is the turnover ratio formula?
A turnover ratio indicates the frequency at which a company sells its traded funds or products. It measures a company’s capacity to manage its sales, assets, and inventory.