Turnover is a broad term which is used in different contexts in different disciplines. In general, it implies the business or trading done by a company, in terms of money, in a given period. On the other hand, the word revenue is specific in nature, which refers to the proceeds received by the company in a particular period. It is not the profit of the company, rather it is the receipts of the company.
Whenever we talk about how big a company is? or how successful it is? Or how much it has grown compared to the past years? What is its net worth? we often come across the words turnover or revenue. For most of the people, these words are one and the same thing, in fact, they associate it with the term ‘sales’ but let me tell you, that they are different from sales, as in, the sales of goods or services is just one stream of income.
Now, let’s move further into the topic to understand the difference between turnover and revenue.
Content: Turnover Vs Revenue
|Basis for Comparison||Turnover||Revenue|
|Meaning||Turnover refers to the amount of business done by an enterprise in a definite period of time.||Revenue implies the proceeds received by the company, either from its normal business operations or otherwise.|
|Demonstrates||Speed at which payment is received from debtors and inventory is sold.||Money received from sale of merchandise and other sources.|
|Ratio||Inventory turnover ratio, debtor turnover ratio, asset turnover ratio, etc.||Gross profit ratio, operating profit ratio, net profit ratio, etc.|
Definition of Turnover
The word turnover has a different meaning in different disciplines. In accounting terminology, Turnover, as the name suggests, refers to the number of times an asset revolves during an accounting period, i.e. the frequency or speed of converting/turning over assets into revenue from operations. It determines the efficiency and effectiveness of the enterprise to manage resources. It is used to know the cycle of purchases, sale and re-order of inventory.
In business terminology, it means the total value received from the sale of goods, the supply of services or both by the company during a particular financial year. It may also mean the total value of business, a firm does, in a particular period.
In Human Resource Management, it is used in the context of employees, i.e. the activity of replacing an employee (left or fired) with that of a new one. The turnover rate indicates the rate at which the organization loses and hires employees.
In finance, the value of shares traded on a financial market during a particular time period, say, in a day/week/month, it is called turnover.
Definition of Revenue
Revenue mainly refers to the money earned by the company during the ordinary course of business operations, i.e. operating revenue. Meaning that, in case of a profit-making company, revenue will be the proceeds from selling the commodity to consumers or rendering services and in case of a non-profit making company it would be a donation, membership fees and subscription.
However, it also includes proceeds from non-operating activities which are infrequent or non-recurring in nature such as the sale of investments, sale of a fixed asset, sale of scrap material, interest received, dividend received, commission received, etc.
Revenue is also called as “Topline” as it appears on the income statement as the top item. All the expenses and costs are deducted from the revenue, resulting in the net income of the firm, which is called the “bottom line”. So, we can say that revenue is the earnings of the business before any deductions.
Key Differences Between Turnover and Revenue
The points given below are substantial so far as the difference between turnover and revenue is concerned:
- Revenue is nothing but the money received by the company, either from its business activities or from non-operating activities. On the other hand, turnover refers to the overall amount of sales generated by a business enterprise, in a given time period.
- Turnover is used to know the company’s efficiency in managing the company’s resources, so as to plan and control the level of production. As against, revenue reflects the increase in the company’s sales growth and profitability position as compared to the previous years.
- Turnover indicates the speed of the company in conducting operations. It represents the quickness of the company in collecting cash from accounts receivable and in selling the company’s products to customers. Conversely, revenue indicates the money brought into the company, either from the sale of products or from non-operating activities.
- Turnover, as the name suggests, refers to the number of times something is replaced. So, ratios like inventory turnover, sales turnover, debtors turnover, asset turnover, etc. reflect the number of times they have been replaced/converted during the year. In contrast, revenue is useful in calculating profitability ratios like gross profit, operating profit and net profit.
In business, the words turnover and revenue plays a crucial role in gauging the performance of the enterprise, and also in case of valuation of the business, in the event of liquidation, sale or merger.