Turnover is the net sales generated by a business, while profit is the residual earnings of a business after all expenses have been charged against net sales. Thus, It is essentially the beginning and ending points of the income statement – the top-line revenues and the bottom-line results.
It is an accounting concept that calculates how quickly a business conducts its operations. Most often, It is used to understand how quickly a company collects cash from accounts receivable or how fast the company sells its inventory.
Annual turnover is the percentage rate at which something changes ownership over a year. For a business, this rate could be related to its yearly turnover in inventories, receivables, payables, or assets.
Inventory Turnover vs. Profit
There are some variations on the terms just described. It can also refer to the number of assets or liabilities that a business cycles through in comparison to the sales level that it generates. For example, a business that has an inventory turnover of four must sell all of its on-hand inventory four times per year to generate its annual sales volume. This information is useful for determining how well a company is managing its assets and liabilities. If a business can increase its turnover, it can theoretically generate a larger profit, since it can fund operations with less debt, thereby reducing interest costs.
Turnover vs. Gross Profit
The “profit” term can refer to gross profit, rather than net profit. The calculation of gross profit does not include any selling, general, and administrative expenses, and so is less revealing than net profit. However, when tracked on a trend line, it can give a useful perspective on the ability of a company to maintain its price points and production costs over the long term. There is little relation between turnover and gross profit.