What is overall turnover?
Overall turnover is a common term—especially outside North America—for a company’s total revenues or gross sales over a reporting period. When a company says “overall turnover increased 20%,” it normally means top‑line revenues grew by that amount.
Notes on terminology
– In the U.S. the term “revenue” or “sales” is used instead of “turnover.”
– “Turnover” can also refer to other whole‑company rates such as labor turnover (employee attrition) or asset turnover (efficiency of asset use). Always check context.
Key takeaways
– Overall turnover = total revenues (gross receipts) for a period.
– “Net turnover” (net sales) typically means gross turnover less returns, discounts, allowances and sales taxes—not COGS.
– Analysts convert turnover into ratios (asset turnover, receivables turnover, inventory turnover, cash/working‑capital turnover) to assess efficiency and liquidity.
– Revenue recognition rules (ASC 606 / IFRS 15) standardized when and how companies should recognize turnover from contracts, improving comparability.
How overall turnover works
– What it measures: the total value of goods and services sold during a period (top line).
– Why it matters: it shows market demand and business scale; combined with margins and cost structure it drives profitability.
– Where it can differ by industry: some businesses have high turnover but low margins (retail, supermarkets); others have lower turnover but high margins (software, professional services). Interpretation therefore requires industry context.
Common turnover and efficiency ratios (formulas, interpretation, and quick examples)
1) Asset turnover
– Formula: Asset turnover = Net turnover / Average total assets
– Measures how efficiently a company uses its asset base to generate sales. Higher = more revenue per dollar of assets.
– Example: Net turnover $2,000,000; average assets $1,000,000 → Asset turnover = 2.0 (i.e., $2 of sales per $1 of assets).
2) Receivables turnover
– Formula: Receivables turnover = Net turnover / Average accounts receivable
– Measures how quickly sales are collected. Higher turnover = faster collections.
– Convert to Days Sales Outstanding (DSO): DSO ≈ 365 / Receivables turnover.
– Example: Net turnover $3,650,000; avg receivables $365,000 → Receivables turnover = 10 → DSO ≈ 36.5 days.
3) Inventory turnover
– Formula (common): Inventory turnover = Cost of goods sold (COGS) / Average inventory
– Measures how quickly inventory is sold and replaced. Higher turnover usually indicates efficient inventory management.
– Example: COGS $1,200,000; avg inventory $150,000 → Inventory turnover = 8 (sold 8× inventory per year).
4) Cash / working‑capital turnover
– Formula: Cash/working‑capital turnover = Net turnover / Average working capital (current assets − current liabilities)
– Gauges how effectively working capital funds current operations.
– Interpretation: Very low or negative working capital can distort the ratio—interpret carefully.
Practical steps — for analysts / investors
1. Identify the revenue base
– Confirm whether published “turnover” is gross or net (returns, discounts, taxes deducted?). Read footnotes and revenue recognition policies.
2. Adjust for one‑offs and nonrecurring items
– Exclude asset sales or atypical contract dispositions if you want core operating turnover.
3. Compute and benchmark ratios
– Calculate asset, receivables, inventory, and working‑capital turnover; compare versus peers and industry medians.
4. Convert to DSO or inventory days
– Use DSO and inventory days to gauge collection and stock efficiency trends over time.
5. Analyze trend drivers
– Revenue composition (products, geographies), pricing changes, seasonality, and changes in credit policy can explain turnover moves.
Practical steps — for management to improve turnover and related ratios
1. Increase top‑line growth
– Improve pricing mix, expand distribution channels, cross‑sell and upsell.
2. Optimize asset use
– Dispose of underused assets; lease rather than buy; improve capacity utilization.
3. Tighten receivables management
– Shorten payment terms, enforce credit policies, offer early‑payment discounts, use automated collections.
4. Improve inventory management
– Implement just‑in‑time, better forecasting, SKU rationalization, vendor‑managed inventory.
5. Manage working capital
– Negotiate longer supplier terms, accelerate receivables, and control inventories to reduce working capital needs.
Turnover and financial reporting — revenue recognition standards
– Global and U.S. standard setters issued a common, principles‑based standard to improve comparability: IFRS 15 (IASB) and ASC 606 (FASB) — “Revenue from Contracts with Customers.”
– Five‑step model (brief):
1. Identify the contract(s) with the customer.
2. Identify performance obligations.
3. Determine the transaction price.
4. Allocate the transaction price to performance obligations.
5. Recognize revenue when (or as) the entity satisfies each obligation.
– Why it matters: Companies now follow consistent rules about timing and measurement of turnover, reducing variability caused by differing recognition practices. Implementation requires contract analysis, systems changes, and clear disclosures.
Practical steps — for companies preparing turnover (revenue) disclosures
1. Review contracts and revenue streams
– Map major contract types to the five‑step model.
2. Update policies and controls
– Document revenue recognition policy, judgment points, and cutoffs.
3. Implement systems & data capture
– Ensure invoicing, performance tracking, and allocation logic are automated and auditable.
4. Disclose clearly
– Provide qualitative and quantitative disclosures: significant judgments, disaggregated revenue, contract assets/liabilities, and performance obligations.
5. Coordinate audit readiness
– Retain supporting evidence, reconciliations, and internal control documentation for auditors.
Industry considerations and caveats
– Ratio usefulness varies by industry—compare within sectors. Asset‑heavy industries (airlines, utilities) naturally have lower asset turnover than asset‑light businesses (software, consulting).
– High turnover is not automatically good: razor‑thin margins, aggressive crediting, or channel stuffing can inflate top‑line temporarily.
– Watch timing and seasonal effects: year‑end promotions or contract timing can distort period‑to‑period turnover changes.
Sources and further reading
– Investopedia, “Overall Turnover” (source article provided)
– FASB, Topic 606: Revenue from Contracts with Customers — Revenue Recognition (ASC 606)
– IFRS Foundation / IASB, IFRS 15: Revenue from Contracts with Customers
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.