What is Turnover?
The turnover of any business for a given period is the total net sales of that business. It is the total sales within a period minus the value of goods returned to the seller by the buyer (customer). The chances of making a profit exist if the business sales activities are more.
Thus: sales return inward = turnover.
Relationship of Capital Investment to Turnover
Turnover is important for any business, this is because the sole aim of any business is to make a profit. When there is a greater sales volume, the trading firm will buy more for reselling. This ensures the optimum utilization of capital.
If the items bought by the trader are not sold fast, the capital invested in the business will be tied down in the business. It will result in less profit. It will have a more negative effect on the business if the capital is borrowed with interest. This is because the interest has to be paid and the loan repaid whether much sales were recorded or not.
Calculation of Rate of Turnover
The rate of turnover or stock turn is calculated by dividing the cost of goods sold by the average stock.
Rate of turnover = \( \frac {cost \; of \; goods \; sold}{average \; stock} \)
Average stock is obtained by adding the opening stock to the closing stock and dividing total by 2.
:- \( \frac{opening \; stock \; + \; closing \; stock}{2} \)
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