What it means
Overall turnover is the widest measure of how much trading a business does. It adds the sales of every business line, including exports and online sales, and usually excludes sales taxes collected on behalf of the government.
It says nothing about profit, because costs have not yet been taken off. The measure matters for several practical reasons.
Tax authorities use turnover thresholds to decide whether a business must register for sales tax, banks look at it when setting credit limits, and regulators use it to size a company when deciding on fines or reporting duties. Check the local definition, because some rules count only certain sales.
Investors compare turnover over time to see whether a business is growing. A rise in overall turnover is welcome, but it can hide weaker margins if sales growth came from discounts.
Analysts therefore read turnover alongside gross profit and operating profit. Overall turnover is also the starting point for many ratios.
Profit margin divides profit by turnover, and asset turnover divides turnover by the assets used to produce it. A business with high turnover and thin margins can still be less valuable than a smaller one with healthy margins.
A common nuance is whether the figure is for one company or the whole group. Sales between companies in the same group should be removed when preparing group turnover, or the total will be overstated.
Smaller businesses often use the phrase loosely when talking to advisers or lenders. It is worth asking each time whether the figure includes sales taxes, discounts or intercompany sales so that everyone is working from the same number.
In practice
Real-world examples.
Example
A bakery chain with six shops adds the daily takings of each shop to its catering income. The combined figure is its overall turnover for the month. The owner compares it to the previous year to see which shops are growing.
Example
A consulting firm approaches the level at which it must register for sales tax. The finance manager adds up fees from every client and every service line. She finds that overall turnover will cross the threshold in four months and starts the registration early.
Example
A lender reviews a small manufacturer asking for a $500,000 credit line. The bank asks for overall turnover for the last three years to judge size and stability. Rising turnover helps the application, but the bank also asks for profit figures.
Formula
Calculation
Overall turnover = sales from all business lines - sales taxes collected - sales between group companies
A group has three divisions: retail sales of $2,400,000, online sales of $1,100,000 and wholesale sales of $1,500,000. The retail figure includes $200,000 of sales taxes collected, and the wholesale division sold $300,000 of goods to the retail division. Total reported sales = 2,400,000 + 1,100,000 + 1,500,000 = $5,000,000. Overall turnover = 5,000,000 - 200,000 - 300,000 = $4,500,000.
Reading the result: the $4,500,000 figure is $500,000 lower than the headline total of $5,000,000, a gap of 10%. Had the group quoted the higher number to a bank or a tax authority, it would have overstated its size, and that could trigger the wrong thresholds or raise questions later.
To use the figure well, put it next to the same measure for the previous year and calculate the growth rate. If last year's overall turnover was $4,000,000, growth is (4,500,000 - 4,000,000) / 4,000,000 = 12.5%, which is a far more useful message for investors than the raw total on its own.Case study
Seen in the real world.
Cedarpoint Trading is an illustrative, fictional distributor with a warehouse business, a small online shop and a services arm. The owner proudly told investors that turnover had grown to $6,000,000, but the bank questioned the number.
The finance manager found that $400,000 of the total was sales taxes collected and $350,000 was goods the warehouse had sold to the online shop at cost. After removing both amounts, overall turnover was $5,250,000, still a good year but not the figure first quoted.
The illustrative lesson is that the definition must be agreed before a number is shared. Cedarpoint now publishes a one-page note explaining what is included and what is stripped out.
Watch out
Common mistakes.
- Treating turnover as profit, when it is the amount sold before any costs are taken off.
- Including sales taxes or sales between companies in the same group, which inflates the total.
- Comparing turnover between firms without checking that they use the same definition and period.
Questions
People also ask.
Is turnover the same as revenue?
In most British usage yes, but some people use turnover to mean the rate at which stock or staff is replaced, so context matters.
Does overall turnover include other income?
It normally covers sales from main activities only, with interest or one-off gains reported separately.
Why do banks ask for it?
It shows the scale of the business and helps judge whether repayments can be supported from trading.
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