What Is Overall Turnover?
Overall turnover is a synonym for a company’s total revenues. It is a term that is most commonly used in Europe and Asia. For example, a European or Asian company's press release that announces overall turnover increased 20% last year simply means that gross revenues or total sales increased by that percentage.
- Overall turnover is equivalent to a firm's total revenues over some period of time.
- The term is most commonly used in Europe and Asia, while the use of the terms revenues or sales is more common in the United States.
- Turnover ratios are used by financial analysts to understand a company's efficiency and profitability based on data found in financial statements.
How Overall Turnover Works
In the United States, companies use revenue or sales to describe turnover. If the overall inventory turnover for an American manufacturing company is 10, it means that the company as a whole generated $10 in revenues for every $1 of assets.
Overall turnover, in the North American context, may also refer to certain metrics, such as labor turnover or asset turnover for an organization as a whole, as opposed to measuring them for a specific division or business unit.
In addition to tracking trends in the level and evolution of a company’s overall turnover, analysts, bankers and investors also use net turnover (overall turnover minus the costs of sales—e.g., tax, discounts, and other costs) figures in a number of financial ratio calculations to assess a company’s health, efficiency in using assets and generating profits, and compare its performance relative to peers.
The usefulness of certain ratios varies by industry, but some of the key ratios include asset and receivables turnover ratios and cash turnover ratios. The asset turnover ratio divides a company’s net turnover by its average level of assets during the year. This is a profitability ratio that measures the company’s ability to use its assets to generate sales.
Receivables turnover is calculated by dividing net turnover by the company’s average level of accounts receivables. This measures how quickly a company collects payments from its customers. Cash turnover ratio compares a compares turnover to its working capital (current assets minus current liabilities) to gauge how well a company can finance its current operations.
Turnover and Financial Reporting
How companies report their turnover figures and how reliable they are to investors and analysts is regularly debated. Most of the concerns relate to when and how revenue is recognized and reported.
The Financial Accounting Standards Board (FASB) and its European counterpart the International Accounting Standards Board (IASB) issued new revenue recognition standards for addressing how companies account for revenue/turnover from contracts. The changes are designed to make it easier to compare revenue figures reported on financial statements across companies. The standard comes into effect in 2018.