Turnover – Definition

Definition of turnover (accounting): Income. Turnover is used interchangeably with revenue and gross income in the context of financial reporting.

What is turnover?

Turnover is an accounting term used most commonly in the UK and refers to the total income of a business. You won’t necessarily see financial accounting books use the term ‘turnover’, as ‘revenue’ is a more internationally recognised term.

However, in a set of UK company accounts, you may see the total income referred to as ‘turnover’, although this figure goes by several other names, including the revenue (which is preferred by IFRS GAAP) and gross income.

A high-level layout of the income statement (on which the turnover figure features) is as follows:

What does turnover not include?

Turnover sometimes excludes some ‘other income’ which is seen as ancillairy to the main trading activity of a business.

For example, a business which has invested in property or land around its factory site may receive some rental income from other tenants who presently occupy buildings which the business doesn’t yet have a use for.

This property income will be trivial in the context of total turnover. It may therefore be reported as ‘other operating income’ below the gross profit line.

This way, the profits from this activity does not appear to enlarge the gross margin of the products the company sells.

Other examples of other income which isn’t usually reported within turnover:

  • Interest received on bank deposits
  • Interest received or accrued on loan notes receivable or bonds
  • Royalty income from intellectual property, if this isn’t a core business activity
Turnover - definition
The definition of turnover is an accounting concept

How is the word turnover used in a sentence?

“This journal entry increased total turnover in the general ledger.

What else you should know about turnover?

Turnover is also a word linked to several accounting ratios, such as:

  • Inventory or stock turnover
  • Staff turnover

These ratios use the word turnover more literally. These ratios calculate how frequently a business churns through its inventory or staff. I.e. how quickly does it run through or turn over that list of resources.

How does the definition of turnover relate to investing?

Turnover is one of the headline Key Performance Indicators (KPIs) which you will read about in financial news and in company financial statements.

Income and profit trends are a key metric for growth investors, as they seek to buy shares in companies which have a strong track record of delivering double-digit % turnover increases.

Further reading, through investing books or courses, will teach you many more ratios and investing strategies which use the turnover figure to help investors make decisions.

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