What is Share Turnover
Share turnover is a measure of stock liquidity calculated by dividing the total number of shares traded over a period by the average number of shares outstanding for the period. The higher the share turnover, the more liquid the share of the company. For example, if the total amount of shares traded over the year was 10 billion and the average amount of shares outstanding for the year was 100 million, the share turnover for the year is 100 times.
BREAKING DOWN Share Turnover
A high level of share turnover also indicates that investors will have an easier time buying and selling their shares. Many investors are unwilling to put their money at risk by acquiring the shares of a company with low share turnover. Low share turnover rate is relatively common for smaller businesses that have a small market capitalization.
Share Turnover Ratio
Share turnover ratio indicates how easy, or difficult, it is to sell shares of a particular stock on the market. It compares the number of shares that change hands during a particular period with the total number of shares that could have been traded during that same period. You can only sell stock if there's a market for it. The more active the market, the higher the trading volume and the higher the share turnover ratio will be. The share turnover ratio only tells you how easily an investor can get rid of shares. It doesn't necessarily tell you anything about the performance of a company behind the stock.
To compute a company's share turnover ratio, you need two numbers. The first is the trading volume, which is the total number of shares of the company's stock that were bought and sold during a given time period. The second number is the total number of outstanding shares, which are shares that have been issued to investors and are available for purchase. To get the average outstanding shares for a period of time, financial analysts simply take the numbers from the beginning of the period and the end, add them together, then divide by two.
If a stock is tanking and no one wants to buy it, that will also be reflected in low turnover. But if the stock is soaring to the point where a single share costs hundreds of dollars, that will also limit the number of investors who are able to buy in because. One reason companies split their stock is to try to make their shares seem more more affordable.