What is ‘Turnover’ Turnover is an accounting term that calculates how quickly a business collects cash from accounts receivable or how fast the company sells its inventory. In the investment industry, turnover is defined as the percentage of a portfolio that is sold in a particular month or year. A quick turnover rate generates more commissions for trades placed by a broker. BREAKING DOWN ‘Turnover’ Two of the largest assets owned by a business are accounts receivable and inventory. Both of these accounts require a large cash investment, and it is important to measure how quickly a business collects cash. Turnover ratios calculate how quickly a business collects cash from its accounts receivable and inventory investments. How Accounts Receivable Turnover Is Calculated Accounts receivable represents the total dollar amount of unpaid customer invoices at any point in time.
Assuming that credit sales are sales not immediately paid in cash, the accounts receivable turnover formula is credit sales divided by average accounts receivable. The accounts receivable turnover formula tells you how quickly you are collecting payments, as compared to your credit sales. 50,000, for example, the turnover rate is six. The goal is to maximize sales, minimize the receivable balance, and generate a large turnover rate. When you sell inventory, the balance is moved to cost of sales, which is an expense account. The goal as a business owner is to maximize the amount of inventory sold while minimizing the inventory that is kept on hand. 2 million inventory that is sold within two months.
Examples of Portfolio Turnover Turnover is a term that is also used for investments. 20 million in securities during the year. Will A New Fund Manager Cost You? Learn how a change in leadership could mean more taxes for you.
How should I use portfolio turnover to evaluate a mutual fund? How to calculate the inventory turnover ratio? How do you analyze inventory on the balance sheet? What financial ratios are best to evaluate for consumer packaged goods? Our network of expert financial advisors field questions from our community. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the 100 most influential advisors and their contributions to critical conversations on finance.
The latest markets news, real time quotes, financials and more. What is ‘Liquidity’ Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Market liquidity refers to the extent to which a market, such as a country’s stock market or a city’s real estate market, allows assets to be bought and sold at stable prices. Cash is considered the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.
Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them. There are several ratios that express accounting liquidity highlighted below. BREAKING DOWN ‘Liquidity’ Cash is considered the standard for liquidity, because it can most quickly and easily be converted into other assets. 1,000 refrigerator, cash is the asset that can most easily be used to obtain it. 1,000, she or he is unlikely to find someone willing to trade them the refrigerator for their collection.