Net profit = Turnover – operating expenses In the above example if expenses including tax are £30,000 then, to work out a net profit, take your gross profit and deduct all other expenses – not forgetting your tax liabilities.This annual Turnovernumber is the sales figure before deducting the purchase, direct expenses, and before adding non-operating incomes or other indirect incomes.

Now on average, the trader sells 1,000 dresses per month. Let’s say a trader of clothing items sells a piece of dress for £10 excluding VAT. Provided you keep accurate records of all the sales invoices, you can add these up easily using the sum tool in the spreadsheet such as Excel, or your invoicing or accounting software. It is relatively easy to work out the Turnover. How to calculate TurnoverĪs we have seen above the Turnover is the total sales that your business generates in a specific period,or we can say in a financial year. Many tech world businesses are valued at multiples of earnings- EBITDA, Earnings before interest, tax, depreciation, and amortisation. It simply means that while the massive sales turnover looks impressive, there is rarely a commercial benefit to this unless it creates the profit.įor instance, a business might priorities building up its market share or customer base in its early stages, which can lead to a chunky turnover despite minimal profits of any type. Is Turnover More Important Than The Profit?īusiness experts love to say that theTurnover is vanity, but the profit is sanity. It tells the amount of money available for an investor to take home- usually dividends. It mainly tells about the demand for a product and services of the company in the market. Refers to the net residual earning after deducting all the expenses. Refers to the net sales of a company generated through business transactions during the financial year. Usually, it is the Last line of the income statement or profit and loss account. Usually, it is the first line of the income statement or profit and loss account. Still fuzzy on these two terms? Let’s have a deep insight. You can also view it as the money your business gets to keep after reducing the net sales figures by all expenses. But Turnover measures it before taking out high costs while profit is residual earnings after expenses. What Is The Difference Between Turnover & Profit?īoth profit and Turnover in business measure earnings. Imagine buying a million caps for £10 each and selling all of them for £1 each.īravo, you’re a millionaire! You’ve ‘turned over’ a million pound and at the same time lost £9 million, which is not great. Generally, you can make lots of money turnover-wise while also making a loss.

It is simply how much money a business has made over a period of time, not how much profit it has made but just the total of all your business sales. To put it another way, we can think of Turnover as the amount you invoice your customers for the sale of service or product, excluding VAT and any discount. According to the Companies Act 2006, Turnover is “The amount derived from the provision of goods and services after deduction of Value added tax (VAT), trade discounts, and any other taxed based on the amounts so derived.”

Revenue turnover definition