What is Turnover?

by Investing School on June 15, 2010

Sure, many people love to enjoy a toasty apple turnover with a glass of milk… but once the term “turnover” enters an investment realm they tend to become a little bit more confused as to what it actually means! Fortunately, investment turnover is not a terribly complicated concept, overall. In financial terms, investment turnover refers specifically to the return that is earned on any financial capital that was invested in a business.

The total investment turnover can be calculated by taking the amount of sales divided by the sum of the net worth plus the long term liabilities for a business. The higher the ratio of investment turnover, then the better the indication is that the funds directed to the business are being utilized appropriately and successfully.

There is some discussion generally about what the most appropriate level might be for a favorable investment turnover ratio. This can vary considerably, although there is general agreement that an extremely low investment turnover ratio could demonstrate that a company either is maintaining too many assets, or else it has not done a very good job of deploying its assets. On the other hand, consider a company that has consistently reported a higher ratio in its investment turnover. A company in this happy circumstance is showing its investors that its assets have been optimally used to produce good sales numbers.

Investment turnover also serves as an accurate measurement of how well a company is able to use its assets to create sales and grow additional business.

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