People often think that investment funds with a high turnover rate are not very good. A portfolio turnover ratio of 20% could be considered the value of trades equaling one-fifth of the total value of the fund's assets. Twenty percent, or $20 million divided by $100 million, is the turnover rate. Investments are sometimes talked about in terms of 'turnover.' Think about a mutual fund with $100 million in assets and a portfolio manager selling $20 million in securities each year. For example, if the cost of sales each month is Rs 5,00,000 and you have Rs 1,00,000 in inventory, the turnover rate is five, meaning a business sells all of its stock five times each year. The goal of a business owner is to sell as much inventory as possible while keeping as little as possible in stock. When inventory is sold, any money left over is moved to an account called 'cost of sales expense.' The target is to make more money, pay bills faster, and have a high turnover rate.Ĭost of goods sold (COGS) divided by average inventory is the formula for inventory turnover, similar to the formula for accounts receivable. For example, if the monthly credit sales are Rs 20,00,000 and the account receivable balance is Rs 4,00,000, the turnover rate is five. The accounts receivable turnover is used to understand the speed at which a company can receive the money for its credit sales. Credit sales divided by the average number of accounts receivable is the formula for accounts receivable turnover, assuming that credit sales are sales that aren't paid for right away in cash. The average accounts receivable is just the average of the amounts at the beginning and end of a certain time period, like a month or year. Fundamental analysts and investors look at these numbers to decide if a company is worth investing in.Īccounts receivable shows the total amount of unpaid invoices from clients at any time. Turnover ratios show how quickly a company turns its inventory and accounts receivable investments into cash. These accounts require a lot of money, so it's important to look at how quickly a company gets the money. Inventory and accounts receivable are two of the most important things a business owns. The turnover is referred to as the revenue of the company in many parts of the world. When it comes to investing, a portfolio's turnover is how much of it is sold in a given month or year. This ratio is known as the inventory turnover ratio. Most of the time, turnover is used to determine how quickly a business gets cash from accounts receivable or sells its inventory. Accounting has a term called 'turnover' that shows the efficiency of a business.

Sales turnover definition