Difference Between Revenue vs Turnover
Revenue and Turnover are often used interchangeably and in many contexts, they also mean the same. For example, assets and inventory are turned over when they flow through a business either by the sale of assets or outliving their useful lives. When these assets generate income by sales it is termed as revenue. Turnover can also refer to business activities that not necessarily are involved with sales for example employee turnover.
In this article, we look at Revenue vs Turnover in detail.
Revenue vs Turnover Infographics
Here are the top 9 differences between Revenue vs Turnover
Revenue vs Turnover Key Differences
The key differences between Revenue vs Turnover are as follows –
- Revenue represents the amount of money a company makes by selling its goods or services to the customers. On the other hand, turnover refers to the number of times a company burns through assets like inventory, cash, and workers
- Revenue is considered important because it helps in understanding the strength of the business, the customer base, size and also the market share. Increase in revenues is a sign of stability and showcases confidence in the business. For a company to get loans and capital on credit it is important for them to have stable revenues. Accounts receivable turnover and Inventory turnover are the most commonly used metrics which help in determining the liquidity position of the company
- Revenue is mentioned as Sales on the income statement and is mandatory for all the public companies to report. Turnover, on the other hand, is not mandatory to report and is calculated for understanding these reported statements better
- Revenue can be of Operating and Non-operating Operating revenue is the revenue earned from regular business activities while non-operating revenues are the additional revenue generated through other activities like rent, dividends etc
- Revenue is calculated as Total sales less any returns while Turnover ratios are calculated as Cash turnover – Net Sales/Cash, Total asset turnover – Net Sales/Average Total Assets and Fixed Asset turnover – Fixed Assets/Net Fixed Assets.
- Revenue affects the profitability of the company while turnover affects the efficiency of the company.
- Revenue for a computer selling company can be determined by multiplying the number of units sold by price per revenue while turnover can be determined by the number of computers sold in a year
- Revenue is important to understand as it helps in determining the growth and the sustainability of the company, on the other hand, understanding the turnover is important to manage production levels and ensure that nothing is left idle as inventory for an extended period of time
Revenue vs Turnover Head to Head Differences
Now, let’s have a look at the head to head differences between Revenue vs Turnover
| Basis of Revenue vs Turnover | Revenue | Turnover | ||
| Definition | Revenue refers to the money earned by the company by selling the goods and services for a price to its customers. | Turnover refers to how many times a company makes or burns through assets | ||
| Effect | Revenue affects the profitability of the company. | Turnover affects the efficiency of the company | ||
| Ratios | Revenue is used to calculate profitability ratios like gross profit, net profit and operating profit margin. | Turnover ratios which are used widely are inventory turnover ratio, asset turnover ratio, sales turnover, accounts receivable and accounts payable ratio. | ||
| Meaning | Revenue is the total value of goods or services sold by the business. | Turnover is the income that a firm generates through trading goods and services. | ||
| Importance | Revenue is important to understand as it is one of the vital factors that determine the growth of the company. | Understanding the turnover is important to manage production levels and ensure that nothing is left idle as inventory for an extended period of time. | ||
| Example | Revenue is calculated as the total amount of computers sold multiplied by the price. | Turnover means the total amount of computers sold in a year. | ||
| Types | Revenue can be of two types – operating revenue and non-operating revenue. | Turnover may be of three types Inventory, Cash and Labor. | ||
| Reporting | It is mandatory to report Revenue and is the first line item on the income statement. | It is not mandatory to report turnover but is instead calculated for understanding the statements better. | ||
| Formula | Revenue is calculated as – Total Sales – Returns |
Few Turnover formulas are as below – Cash turnover – Net Sales/Cash Total asset turnover – Net Sales/Average Total Assets Fixed Asset turnover – Fixed Assets/Net Fixed Assets |
Conclusion
The difference between Revenue vs Turnover is complex but very essential for all the organizations to survive. Increasing and maximizing revenues is a vital aspect that all the organizations strive to achieve. Comparing revenue year on year helps them determining which direction the company is heading into and if there is any scope of improvement. For determining the turnover ratios are correctly calculated or no it is important to have a benchmark set. Determining the correct turnover ratios mainly depends on the nature of the industry and the business type. Although there is a difference between revenue vs turnover, both are important concepts to business.
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