Turnover and Revenue are financial terms that are often used interchangeably in various fields but there are varied forms of differences between the two terms. Turnover is the value of sales in any organization at a particular time whereas revenue is the income that is generated by any company by selling their goods and services. Turnover can also simply mean the number of times revenue generated by any organization.
Turnover vs Revenue
The main difference between turnover and revenue is that turnover refers to how quickly any company sells its inventories or how quickly it collects cash from accounts receivable whereas revenue is the money earned by a company by simply selling their goods and services at a certain price to generate the maximum profit out of it.
Revenue largely defines the profitability of a company that it gains by selling their goods at a particular price to the consumers. This revenue further defines the growth of a particular company in the market.
Turnover decides the efficiency of the organization because turnover is the accounting concept that calculates how quickly any organization conducts its operations.
Comparison Table Between Turnover and Revenue (in Tabular Form)
| Parameters of Comparison | Turnover | Revenue |
|---|---|---|
| Definition | Turnover is the amount of business done by any organization in a particular period. | Revenue is the income generated by the company by selling goods and services. It is the gross income of the company. |
| Types | Turnover can be deciphered basically into three categories namely inventory, cash, and labor. | Revenue can be broadly divided into categories that are Operating and non-operating revenue. |
| Importance | Turnover is important to manage the production levels of the company. | Revenue is important to determine the growth of the company. |
| Impact | Turnover demonstrates the efficiency of any company by determining the rate at which the work is done. | It demonstrates the profitability of the company by determining the money earned by selling goods and services. |
| Uses | It is usually used to calculate the asset turnover ratio, inventory turnover ratio, and sales turnover. | It is used to calculate the net profit, gross profit, and operating profit margin. |
What is Turnover?
Turnover is understood as the rate at which any company conducts its business operations. Most often, it is also perceived as the concept to determine how quickly any company sells its inventory.
The most common uses of this concept are to look at the ratios of accounts receivable and inventories. However, in different fields such as accounting, business, human resource management, etc the word can have varied terminologies but usually means the same thing.
Some of these definitions are listed as follows:
- Accounting sector- The number of times an asset (cash, inventory, raw materials) is replaced or revolves during the accounting year.
- Finance sector- the value of shares traded on the stock exchange during a day, month, or year.
- Human resource management- the number of employees hired to replace those who left or were fired during the 12 months.
Turnover is of foremost importance to determine the production levels and to ensure that nothing is excluded out of the list over a period which further defines the efficiency of the company.
What is Revenue?
Revenue is simply the income generated by any organization by selling their goods and services at a particular to ensure profit. The revenue gives the gross income of the company from which the costs are deducted to give the net income of the company.
Revenue is important to keep a check on the profitability of the company just by selling the products and services that is why it is also referred to as sales of the company many times.
It is often the top line of the company because it comes first in the income statement. There is profit when revenue exceeds the expenses, therefore, to gain the maximum profits the organization must increase the revenue and reduce the expenses.
The Revenue can be subcategorized into two forms that are:
- Operating revenue: it is the revenue generated from the core departments of the organization.
- Non–operating revenue: it is the revenue that is generated from secondary sources such as money awarded through litigation.
Main Differences Between Turnover and Revenue
- Turnover is the rate at which any company conducts its business over a particular period whereas Revenue is the money earned by any organization by selling its products at a particular price.
- Turnover is the main determinant of the efficiency of any company because it keeps a check on the management of production levels whereas Revenue determines the profitability of any organization. After all, it keeps a check on the gross income of the organization.
- Revenue is predominantly of two types that are operating and non-operating revenues whereas turnover can be divided into three categories that are inventory, cash, and labor.
- Profitable ratios such as gross profit and net profit are calculated using revenue whereas other ratios such as inventory turnover ratio, sales turnover, asset turnover ratio are calculated using the turnover of the organization.
- The overall production levels of the company depend on turnover whereas the overall growth of the company depends on revenue.
Conclusion
Turnover and Revenue are terms commonly used in the context of accounting. Turnover refers to the rate at which any company conducts its operations to ensure the sustainability and efficiency of the company whereas revenue is the total income generated by any organization by selling their goods and services at a particular price. Revenue is useful to determine the profitability of any organization whereas turnover manages the production levels.
Turnover has different terminologies for various fields such as business, human resource management, finances, etc whereas revenue usually denotes similar meaning all over. Turnover can be divided into three broad categories such as inventory, cash, and labor whereas Revenue is usually divided into operating and non-operating revenues. Revenues also help any organization to determine its net income by subtracting expenses from the revenue.
References
- https://eprints.lse.ac.uk/64916/1/Spinnewijn_Production%20versus%20Revenue%20Efficiency.pdf
- https://anesthesiology.pubs.asahq.org/article.aspx?articleid=1942223&resultclick=1