What Is Overall Turnover?
Let me explain overall turnover directly: it's just another way to say a company's total revenues over a specific period. You'll hear this term mostly in Europe and Asia. For instance, if a European or Asian company announces in a press release that their overall turnover jumped 20% last year, they're telling you their gross revenues or total sales increased by that amount.
Key Takeaways
- Overall turnover equals a firm's total revenues over a given time frame.
- This term is prevalent in Europe and Asia, whereas in the United States, we typically say revenues or sales.
- Financial analysts use turnover ratios to gauge a company's efficiency and profitability from financial statement data.
How Overall Turnover Works
In the United States, companies stick to terms like revenue or sales when discussing turnover. Take an American manufacturing company with an overall inventory turnover of 10—that means it generated $10 in revenues for every $1 of assets. Overall turnover in a North American setting might also point to metrics like labor turnover or asset turnover for the whole organization, not just a single division or unit.
Turnover Ratios
Beyond just tracking a company's overall turnover levels and changes over time, analysts, bankers, and investors look at net turnover—which is overall turnover minus costs like taxes, discounts, and other expenses—in various financial ratios. These help evaluate the company's health, how efficiently it uses assets to generate profits, and how it stacks up against competitors.
The value of these ratios depends on the industry, but key ones include asset turnover, receivables turnover, and cash turnover ratios. The asset turnover ratio is net turnover divided by the average assets over the year; it shows how well the company uses its assets to produce sales. Receivables turnover comes from dividing net turnover by average accounts receivables, indicating how fast the company collects from customers. The cash turnover ratio compares turnover to working capital (current assets minus current liabilities) to measure how effectively the company funds its operations.
Turnover and Financial Reporting
There's ongoing debate about how companies report turnover figures and how reliable they are for investors and analysts. Most issues center on when and how revenue gets recognized and reported. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) rolled out new revenue recognition standards to handle revenue from contracts more consistently. These changes make it simpler to compare revenue figures across companies' financial statements, and they went into effect in 2018.
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