Understanding the financial health of your company is essential to determining its success. One of the simplest indicators to grasp, turnover, will show you whether or not you’re meeting your financial objectives. 

What is turnover? 

Turnover is an accounting concept essential for businesses to understand to track their financial performance. It refers to the calculation of the total revenue generated by a business over a specific period. This calculation is essential for determining a business’s profitability and making informed investment decisions. 

Inventory, accounts receivable, working capital, and portfolio turnover are common forms of turnover. A variety of these ratios can help businesses, frequently with the aim of maximising turnover, to better gauge the effectiveness of their operations. 

The percentage of a portfolio sold in a particular month or year is referred to as turnover in the investment sector. Increased commissions are the result of a broker’s trading activities with a high turnover rate. 

Understanding turnover 

Understanding the concept of turnover accounting is essential for any business looking to improve its financial performance and make informed decisions about its future. To calculate turnover, a business must first determine its total revenue, including all sales and other income generated during the measured period. This revenue figure is then divided by the average value of the assets used to generate that revenue. This calculation provides a measure of efficiency, indicating how much revenue is generated for each dollar invested in the business. 

Turnover accounting is particularly important for businesses with high fixed assets, such as manufacturing or retail businesses. These businesses must invest significantly in equipment, inventory, and other assets to generate revenue. By tracking turnover, they can determine whether these investments yield a sufficient return and identify areas where improvements can be made. 

Another important aspect of turnover accounting is comparing a business’s performance over time or against industry benchmarks. This allows businesses to identify trends and make strategic decisions about future investments or operational changes.   

Types of Turnover 

Businesses may enhance their financial performance and make informed decisions by comprehending and keeping track of these three forms of turnover. 

  • Portfolio turnover 

The rate at which a corporation sells, or purchases fund securities is known as portfolio turnover. Investors examine this rate to assess what costs and taxes a greater turnover rate would entail. Taxes on capital gains, often levied at higher rates, might cancel out the benefit of purchasing or selling a share. Although lower turnover rates are less likely to result in capital gains taxes, they imply decreased profitability. 

  • Accounts receivable turnover 

Accounts receivable turnover measures how quickly a company collects payments from its customers. This turnover is calculated by dividing the average accounts receivable by the total credit sales. The higher the accounts receivable turnover, the more efficiently a company collects customer payments. A low accounts receivable turnover indicates that a company needs help to collect payments, which can cause cash flow problems and increase bad debt expenses. 

  • Inventory turnover 

Inventory turnover measures how quickly a company sells its inventory. It is calculated by dividing the cost of goods sold by the average inventory. A high inventory turnover means a company sells its products quickly, which is a good sign for profitability. However, a low inventory turnover can indicate that a company needs to hold onto more inventory, which ties up cash and can lead to obsolescence or spoilage. 


Example of turnover 

For example, if your monthly cost of sales is US$8,000 and you have US$1000 in inventory, your turnover rate is 8, which means your company sells all of its stock eight times per year. 

Importance of turnover 

Business turnover is crucial for several reasons, including that it benefits companies. Turnover helps companies assess how they’re doing because it reveals how much money a firm makes in a specific time frame. 

Businesses may more accurately predict future sales and choose how to distribute expenditures and where to make the most money by estimating turnover. 

Additionally, companies can determine where they may have a low turnover rate and where they might enhance operational or sales areas by assessing turnover. 

In terms of investment, turnover may assist a business or person in assessing the risk of working with a specific organisation. Since it may indicate that a corporation passively handles its money, low turnover might indicate a higher risk of investing. 

Frequently Asked Questions

Turnover is the net sales a company generates, whereas profit is the earnings left over after all costs have been deducted from net sales. Hence, turnover and profit are the top-line earnings and bottom-line outcomes, which mark the beginning and finish of the income statement.  

Working capital turnover, or net sales to working capital, measures the connection between the resources utilised to finance an organisation’s operations and the revenues earned to maintain operations and make a profit. 

A corporation may create more sales by having a greater working capital turnover ratio, which is good. Still, if working capital turnover increases excessively, it can be a sign that a business needs to seek more money to sustain future expansion. 

There is a relatively straightforward approach for calculating the portfolio turnover ratio. You can divide the minimum number of shares purchased or sold by the average assets under management (AUM).  

The figure you will get is the fund’s specific portfolio turnover ratio. It is necessary to have the same time horizon for the stocks and the AUM. Monthly or annual time frames are both acceptable. PTR is always expressed as a percentage. 


A percentage of 100% or higher means that all of the fund’s securities were either replaced or sold for new holdings during a year. Before acquiring a mutual fund or other similar financial instruments, it is crucial to consider the portfolio turnover ratio since it impacts the fund’s investment performance. 

For mutual funds, a high portfolio turnover ratio is seen as negative. Many investors in mutual funds think that frequent buying and selling, or “churning,” drives up expenses and reduces profits. Many investors in mutual funds are concerned about increasing portfolio turnover in some schemes. 


Related Terms

    Read the Latest Market Journal

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 35 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 52 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 92 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 172 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 93 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 124 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Why 2024 Offers A Small Window of Opportunity and How to Position Yourself to Capture It

    Published on Mar 28, 2024 171 

    With the Federal Reserve (FED) finally indicating rate cuts in 2024, we witnessed a significant...

    Weekly Updates 25/3/24 – 29/3/24

    Published on Mar 25, 2024 75 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com