Unlocking the Mystery of Overall Turnover for Businesses
Overall turnover is synonymous with a company’s total revenues, a term commonly used in Europe and Asia. For instance, if a European company’s press release states that overall turnover increased by 20% last year, this means that its gross revenues or total sales saw a 20% increase.
Key Insights
- Total Revenues: Overall turnover represents a firm’s total revenues over a specific period.
- Regional Usage: The term ’turnover’ is prevalent in Europe and Asia, whereas ‘revenues’ or ‘sales’ are more commonly used in the United States.
- Analytical Tool: Financial analysts use turnover ratios to evaluate a company’s efficiency and profitability by examining financial data.
The Inner Workings of Overall Turnover
In the United States, terms like revenue or sales are used instead of turnover. For example, if an American manufacturing company reports an overall inventory turnover ratio of 10, this implies the firm generated $10 in revenues for every $1 of assets.
In North America, overall turnover might also pertain to various metrics, such as labor turnover or asset turnover for an entire organization, unlike its usage for specific divisions or business units.
Turnover Ratios for Insight
Analyzing trends in a company’s overall turnover helps financial analysts, bankers, and investors assess a company’s health. Using net turnover (overall turnover minus costs related to sales—like taxes, discounts, and other expenses) helps calculate various financial ratios. Key ratios include:
- Asset Turnover Ratio: Divides net turnover by the average level of assets throughout the year. It measures a company’s ability to utilize assets to generate sales.
- Receivables Turnover Ratio: Calculated by dividing net turnover by the average level of accounts receivables. This ratio measures how quickly a company can collect payments from its clients.
- Cash Turnover Ratio: Compares a company’s turnover to its working capital (current assets minus current liabilities) to determine its ability to finance ongoing operations.
Turnover and Financial Reporting Accuracy
The reporting of turnover figures and their reliability is often debated. Concerns often center around the timing and method of revenue recognition and reporting.
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have introduced new revenue recognition standards to address how companies account for revenue from contracts. These changes, which took effect in 2018, aim to standardize revenue reporting across companies, enhancing comparability.
Related Terms: Revenue, Sales, Asset Turnover, Receivables Turnover, Cash Turnover, Financial Reporting, Revenue Recognition.
References
- Financial Accounting Standards Board (FASB). “Revenue Recognition”.
