Turnover

Definition of "Turnover"

Written by

Dolores Diaz

Keller Williams Boynton Beach

Generally, the term turnover is the accounting method of calculating how fast operations are conducted by a business. The simplest turnover definition is the rate at which a company sells its inventory or how fast they collect cash from accounts receivable. In order to define turnover, we can look at it as a percentage of an inventory sold during a particular period. Due to this, we can say that a quick turnover will generate more revenue or commission. In Europe or Asia, “overall turnover” is used interchangeably with a company’s total revenue.

General Information about Turnover

A business’s two largest assets are accounts receivable and inventory. Both require large investments, and companies need to determine how fast they can collect cash from them. The reason why turnover is so important is that they are used to determine turnover ratios. Turnover ratios help investors determine whether a company is a good investment opportunity for them. The third type of turnover we’ll cover here is portfolio turnover. Let’s take a closer look at how the main types of turnovers work.

Accounts Receivable Turnover

This helps companies determine how fast they are collecting payments when compared with credit sales. So, through accounts receivable, the company can assess the total dollar amount of unpaid customer invoices at any point in time.

Inventory Turnover

The inventory turnover indicates how fast a company can sell its entire inventory. This is important for investors as a means to determine how risky it would be for them to provide operating capital to a company. 

Portfolio Turnover

In the world of investments, the term turnover is used for portfolio turnover, which helps determine if trades are managed successfully or not. With investment funds, excessive turnover can lead to higher trading costs, while fewer turnovers can increase the rate of return.

Turnover in Real Estate

Figuring out what turnover is in real estate takes us back to the beginning of this explanation. Real estate agents, brokers, or homeowners use real estate turnover to determine the property turnover in an area over a certain period of time. In other words, you can define turnover as a way to see how the sale of one average real estate inventory item within a specified time can impact your home sale or, simply put, figure out how fast your home will sell. For example, if you have 100 homes in your neighborhood and there are about 20 homes that sell each year, your area has a turnover rate of 20%. The house turnover meaning can be reversed to tell you the average length of homeownership in the neighborhood (1/20 for the example above would be 20 years). 

Turnover in the real estate industry can also represent the movement or change of people such as tenants. This is more often used by rental properties by property managers. For rental properties, the idea is to keep your turnover rate in check as it refers to when the apartment or unit is vacant. A vacant unit brings losses, and those losses will affect your profit margin and bottom line.