How is turnover calculated?

What Is Turnover?

Turnover represents the total value of goods and services sold by a company over a specific period, usually a fiscal year. It is a financial indicator that reflects the size and performance of a business. Turnover does not include VAT or other taxes collected on behalf of the state. It provides a clear picture of a company’s activity volume and is frequently used in financial analysis to assess business growth and stability.

How Is Turnover Calculated?

Calculating turnover is a simple and straightforward process that involves summing up the revenues from the sale of goods and services over a specific period. Here are the detailed steps for calculating turnover:

1. Identifying Sales Revenue – The first step is to identify all revenue sources from sales. This includes all sales of products and services to customers, excluding VAT and other taxes collected on behalf of the state.
2. Summing Sales Revenue – Add all the sales revenue for the specified time period. For example, if you want to calculate turnover for a fiscal year, sum all sales revenue recorded during that year.
3. Excluding Returns and Discounts – If there are product returns or discounts granted to customers, these must be deducted from the total revenue to get the net turnover.
4. Review and Reporting – After calculating net turnover, it’s important to verify the accuracy of the calculation and properly report this value in the company’s financial statements.

Turnover Calculation Example

To illustrate how turnover is calculated, consider the following example:

A company sells products and services and records the following sales revenue in a fiscal year:

Revenue from product sales: 500,000 RON

Revenue from services: 200,000 RON

The company granted discounts amounting to 20,000 RON and had product returns worth 10,000 RON.

The gross turnover calculation would be:

Gross turnover = 500,000 + 200,000 = 700,000 RON

The net turnover calculation would be:

Net turnover = 700,000 – 20,000 – 10,000 = 670,000 RON

Thus, turnover represents an indicator of a company’s financial performance and can be calculated by summing revenue from sales of goods and services, excluding returns and discounts. This simple yet important calculation provides a clear picture of a business’s economic activity and is essential for financial analysis and reporting.