Comparing Turnover and Profit

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, turnover and profit are essentially the beginning and ending points of the income statement - the top-line revenues and the bottom-line results.

Inventory Turnover vs. Profit

There are some variations on the terms just described. Turnover can also refer to the amount of assets or liabilities that a business cycles through in comparison to the sales level that it generates. For example, a business that has inventory turnover of four must sell all of its on-hand inventory four times per year in order 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.

Related AccountingTools Courses

Business Ratios Guidebook

Financial Analysis

The Interpretation of Financial Statements

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.