rate of turnover

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The frequency, expressed in annual terms, with which some part of the assets of an organization is turned over (i.e. replaced by others of the same class). In order to calculate how frequently stock is turned over, the total sales revenue (or, if a more accurate estimate is needed, the cost of sales) is divided by the average value of the stock. This provides a reasonable measure in terms of current assets. Some accountants also divide the sales figure by the value of the fixed assets to arrive at turnover of fixed assets. This is hardly realistic, although it does express the relationship of sales to the fixed assets of the organization, which in some organizations could be significant. See also capital turnover.

Subjects: Financial Institutions and Services — Accounting.

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