TURNOVER

CONTENT

1. Meaning of Turnover
2. Rate/Rapidity of Turnover (ROT)
3. Formula for Turnover
4. Calculation of Gross Profit/Net Profit to Turnover
5. Variation in Turnover in Different Types of Business

Meaning of Turnover

Turnover of a business is the net-sales during a particular period e.g. a year. This is the value of total sales of an organization during an accounting period, i.e. sales less return inwards.

Rate/Rapidity of Turnover (ROT)

The rate or rapidity of turnover represents the number of times the value of average stock is sold at any given period. In this respect, the greater the turnover, the greater the gross profit.

Formula for Turnover

To calculate the rate of turnover, the formula to be used is represented below:

\(ROT = \frac{\text{Cost of goods sold}}{\text{Average stock}}\)

Example: if cost of goods sold is N2,000 and average sock is N500; what is the rate of turnover?

Solution:

\(ROT = \frac{2000}{500} \\ = 4 times\)

Importance of Rate of Turnover

(i) It helps to determine the size of the gross profit

(ii) It helps the growth of the business

(iii) It acts as a driving force which compels traders to adopt different measures to succeed e.g.