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Dive into the world of financial knowledge with our encyclopaedia entry on the topic of turnover. We shed light on terms such as revenue, earnings, gross and net turnover etc. and explain the difference between turnover and profit. Discover the basics of turnover and its importance in business life.

Turnover definition: What does turnover mean?

Turnover refers to the total revenue that a company generates through its normal business activities within a certain period, usually within a financial year (annual turnover) or quarter. This includes the sale of goods, products or services before any costs or expenses are deducted. Turnover is a key indicator of a company's operations and success, as it provides an indication of how effectively the company is carrying out its main activities and generating revenue. It is often referred to as the "top line" as it is listed at the top of the income statement before any deductions are made for costs, taxes and other expenses.

Summary: Part of Turnover or not part of Turnover?

Here is a table that summarizes what counts as turnover and what does not:

Counts towards turnover Does not count towards turnover
Proceeds from the sale of products or goods Investment income such as interest and dividends
Income from services Income from the sale of fixed assets
License income Compensation payments received
Income from rental and leasing Subsidies and grants
Income from extraordinary items

Turnover: Gross or Net?

The distinction between gross and net sales is important when analyzing a company's financial performance, as it provides insight into the effectiveness of sales strategies and the quality of sales. Net sales provide a more realistic overview of how much revenue is actually generated that is available to cover operating costs and generate profits.

Overview of the difference between gross and net sales

The following diagram shows the difference between gross and net sales as an easy-to-remember graphic.

The difference between gross and net sales explained in more detail

A distinction is made between gross and net sales as follows:

Net sales, on the other hand, is the amount that remains after deducting these items from gross sales. This means that discounts, returns and VAT are deducted to determine the actual revenue accruing to the company.

Important technical terms and synonyms
on the topic of turnover

Term Explanation
Turnover Total income from the sale of goods or services before deductions.
Proceeds Income from the sale of products or services; often used synonymously with turnover.
Earnings Total financial performance of a company, including sales and other income.
Revenue Cash inflow into a company, including sales, investments and other sources.
Sales tax Tax on the sale of goods and services that is collected by the seller and paid to the tax office.
Loss Negative result when a company's expenses exceed its income.
Gross sales/turnover Total revenue from sales before deduction of discounts, returns and VAT.
Net sales/turnover Revenue after deduction of discounts, returns and VAT.
Return on sales Percentage of sales that remains as profit after deduction of all costs.
Direct costs Costs that can be directly allocated to the manufacture of a product or the provision of a service.
Indirect costs Costs that cannot be directly allocated to a product or service, e.g. administrative costs.
Variable costs Costs that vary with the quantity produced, e.g. raw materials.
Fixed costs Costs that are incurred regardless of the quantity produced, e.g. rent.

This is a table of terms related to turnover and their respective explanations. This table provides a comprehensive overview of the various financial terms that are directly related to a company's turnover and helps to develop a deeper understanding of financial terminology.

Calculate the Turnover: Turnover Formula

The turnover of a company is usually calculated using the following formula:

Sales=Number of units sold×Price per unit

This simple formula applies to both product and service companies, where "number of units sold" represents the quantity of products sold or the number of services provided and "price per unit" represents the selling price per product or service.

For companies that offer different products or services, the total turnover can be calculated by adding up the turnover for each product or service category:

Total sales=∑( Number of units sold×Price per unit)

where "unit" represents each product or service category.

This calculation indicates gross sales before any deductions such as discounts, returns or VAT are taken into account. To calculate net sales, these deductions must be subtracted from gross sales.

Calculation Example

Here is a sample calculation for the turnover of a company:

  • Turnover from product A: 100 units×20 euros/unit=2000 euros
  • Turnover from product B: 150 pieces×30 Euro/piece=4500 Euro

Total turnover of the company: 2000 Euro+4500 Euro=6500 Euro

The company therefore achieves a total turnover of 6500 euros from the sale of product A and B.

How is sales tax calculated in this context?

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Other important Differences and Terms

In relation to turnover, there are some other important differences or terms that require further explanation.

Turnover Profit Difference

Turnover and profit are two basic but different financial indicators that measure a company's financial performance:

  • Turnover is the total revenue that a company generates from the sale of its products or services within a certain period of time, without deducting the costs incurred in creating the products or providing the services. Turnover is often referred to as the "top line" as it is at the top of the income statement and is a measure of the company's selling power and market reach.
  • Profit, also known as net income or net profit, is the amount left over after all operating costs, taxes, interest and other expenses have been deducted from sales. Profit shows what is ultimately left over as the financial success of the company and can be seen as a measure of its profitability. Profit is often referred to as the "bottom line" and provides insight into the efficiency with which a company manages its resources and controls its costs.

To summarize: While turnover represents the total revenue generated, profit is what is left after deducting all costs and expenses. Both key figures are essential for assessing the financial health and performance of a company, but they reflect different aspects: turnover the sales performance and profit the profitability.

Difference in Value and Volume Sales

The difference between value-based and volume-based sales lies in the way in which sales are measured:

  • Value-based turnover refers to the financial value of the goods or services sold. It is expressed in monetary units (such as euros, dollars, etc.) and indicates the total value of products or services sold in a given period. Value-based sales take into account the price at which the products or services were sold and thus reflect the revenue that a company generates from its sales activities.
  • Volume-based revenue, on the other hand, refers to the quantity of products or services sold, regardless of their selling price. It is measured in physical units (such as pieces, kilograms, liters, etc.) and shows how much of a product or service was actually sold in a given period. Volume sales focus on the volume of business activity without taking into account the prices achieved.

While value-based sales shed light on the financial dimension of a company's sales success, volume-based sales provide information on the physical dimension of the products or services sold. Both figures are important for analyzing business performance, but offer different perspectives on a company's sales activities.

What is loss or negative profit?

A negative profit or loss occurs when a company's total costs and expenses exceed its total income and sales within a certain period of time. In other words, when expenses exceed income, this results in a loss. This condition indicates that the company is spending more money on its operating, production, distribution and other costs than it is earning from the sale of its products or services. A sustained loss can jeopardize the financial stability and sustainability of a company. Losses are reported in a company's income statement and are an important indicator of its financial health.

Key Questions on Turnover answered briefly

What is a good turnover/profit ratio?

A "good" return on sales/profit ratio varies depending on the industry and market conditions. In general, a return on sales (profit margin) of 5-10% is considered solid for many industries, while higher margins of 15-20% or more are considered particularly strong in certain sectors such as software or internet services. It is important to evaluate this ratio in the context of the specific industry and over time to properly assess trends and the financial health of a company.

What is turnover revenue expenses?

Turnover refers to the total income that a company generates through its business activities, typically the sale of goods or services, within a given period.

Revenue is the total amount a company receives from various sources, including sales, interest and other income.

Expenses are the costs incurred in creating and selling the products or services and in managing the business. Revenue minus expenses equals the company's profit or loss.

Which key figure indicates the ratio of profit to sales?

The key figure that indicates the ratio of profit to sales is the return on sales, also known as the profit margin. It is calculated by dividing profit by turnover and often expressing the result as a percentage to show what proportion of turnover remains as profit.

How do you calculate the costs from profit and sales?

The costs can be calculated by subtracting the profit from the turnover. Expressed mathematically: costs = turnover - profit. This formula is based on the fundamental assumption that the profit is the result of the turnover minus the costs, which can be converted to determine the costs.

What is gross or net sales?

Gross turnover refers to a company's total revenue from the sale of goods or services, without deducting costs or expenses. Net turnover, on the other hand, takes into account deductions such as discounts, returns and VAT, i.e. the revenue that remains after these items have been deducted. Net turnover therefore indicates the actual revenue that the company receives from its business activities.

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