Formula for calculating turnover and examples

2024 Author: Howard Calhoun | [email protected]. Last modified: 2024-01-17 18:37

One of the indicators that characterizes the dynamics of the company's sales is turnover. It is calculated in selling prices. Analysis of the turnover gives an assessment of the qualitative and quantitative indicators of work in the current period. The validity of calculations for future periods depends on the conclusions made. Let us consider in more detail the methods for calculating the turnover.

Inventory turnover

Everything that is in stock is a current asset of the organization. This is frozen cash. Inventory turnover analysis is performed to understand how long it will take to convert goods into cash.

The presence of product balances on the one hand is an advantage. But even when they accumulate, sales decline, the organization still has to pay taxes on inventory. In such cases, we speak of low turnover. At the same time, the high speed of selling goods is not always a big advantage. With growthturnover, there is a risk that the client will not find the right product and turn to another seller. To find the sweet spot, you need to be able to analyze and plan inventory turnover.

Terms

A commodity is something that is bought and sold. This category also includes services if their cost is paid by the buyer (packaging, delivery, payment for communication services, etc.).

Inventory is a list of goods available for sale. For retailers and wholesalers, inventory is the items on the shelves, and those that are in stock are shipped and stored.

Inventory also includes products that are still in transit, in stock, or on accounts receivable. In the latter case, ownership remains with the seller until the goods are paid for. Theoretically, he can ship it to his warehouse. When calculating the turnover, only those products that are in stock are taken into account.

Turnover is the volume of sales in monetary terms, calculated for a certain period. Next, the algorithm by which the turnover is calculated, the calculation formula will be described.

Example 1

You need to calculate the average inventory for six months, based on the data in the table.

Month	Inventory, RUB thousand
January	45880
February	40667
March	39787
April	56556
May	56778
June	39110
Total	278778

Average inventory:

Тз avg=278778 (6-1)=55755, 6 thousand rubles.

You can also calculate average balances:

Osr'=(Balances at the beginning + Balances at the end)/2=(45880+39110)/2=42495 thousand rubles.

Turnover and how to calculate it

A firm's liquidity ratio depends on the speed at which funds invested in stocks are converted into cash. To determine the liquidity of stocks, the turnover ratio is used. It is calculated according to different parameters (cost, quantity), periods (month, year), for one product or an entire category.

There are several types of turnover:

• turnover of each product in any quantitative indicators (pieces, by volume, weight, etc.);
• product turnover by value;
• total inventory turnover in quantitative terms;
• total inventory turnover by value.

In practice, the following formulas are most often used to determine the efficiency of inventory use:

1) The classic formula for calculating turnover:

T=(Inventory balance at the beginning of the period)/(Sales volume for the month)

2)Average turnover (calculation formula for the year, quarter, half year):

Тз av=(ТЗ1+…+T3n) / (n-1)

3) Turnover period:

DAYS=(Average turnoverNumber of days in period) / Sales volume for the period

This indicator calculates the number of days it takes to sell inventory.

4) Turnover times:

Vr=Number of days / VD days=Sales volume for the period / Average turnover

This coefficient shows how many turnovers the product makes during the period under review.

The higher the turnover, the more efficient the organization's activities, the lower the need for capital, and the more stable the position of the enterprise.

5) Stock level:

Uz=(Inventory at the end of the periodNumber of days) / Turnover for the period

Inventory level characterizes the security of the company with goods on a certain date. It shows how many days of trading the organization will have enough inventory.

Features

The formula for calculating turnover and other indicators presented above is used under the following conditions:

• If an organization has no inventory, then there is no point in calculating turnover.
• Retail turnover, the calculation formula for which will be presented below, may be determined incorrectly if it includes targeted deliveries of goods. For example, a company won a tender to supply materials to a shopping center. Under this order, a large batch of sanitary ware was delivered. These items should not be included in the turnover calculation.
• The calculation takes into account the live stock, that is, the goods that arrived at the warehouse were sold, and those for which there are balances, but there was no movement.
• Product turnover is calculated using purchase prices only.

Example 2

Conditions for calculations are presented in the table.

Month	Sold, pcs	Remainder, pieces
January	334	455
February	317	412
March	298	388
April	250	235
May	221	256
June	281	243
TOTAL	1701
Average stock		328

Determine the turnover period in days. In the analyzed period 180 days. During this time, 1701 items were sold, and the average monthly balance was 328 items:

OBdn=(328180)/1701=34, 71 days

That is, from the moment the goods arrive at the warehouse until they are sold, it takes an average35 days.

Calculate the turnover in times:

RO times=180 / 34, 71=1701 / 328=5, 19 times.

For half a year, the stock of goods turns on average 5 times.

Determine the stock level:

Uz=(243180)/1701=25, 71.

The organization has enough stock for 26 days of operation.

Purpose

Inventory turnover is analyzed to find positions where the commodity-money-commodity cycle rate is very low and make a decision accordingly. It makes no sense to analyze goods of different categories in this way. For example, in a grocery store, a bottle of cognac may be sold at a faster rate than a loaf. But this does not mean that bread should be excluded from the assortment of goods. It is simply not necessary to analyze these two categories in this way.

Compare the following products within the same category: bread with other bakery products, and cognac with high-end alcoholic beverages. Only in this case it is possible to draw conclusions about the intensity of turnover of a certain product.

Analysis of sales dynamics in comparison with previous periods will allow us to conclude that demand has changed. If during the analyzed period the turnover ratio has decreased, then there is an overstocking of the warehouse. If the indicator is growing and, moreover, at a rapid pace, then we are talking about working “from the wheels”. In conditions of commodity shortage, warehouse stocks can be zero. In this case, inventory turnover can be calculated in hours.

Ifseasonal goods have accumulated in the warehouse, for which there is low demand, then it will be difficult to achieve turnover. You will have to buy a wide range of rare goods, which will affect their liquidity. Therefore, all calculations will be incorrect.

It is also important to analyze the terms of delivery. If an organization purchases at its own expense, then the calculation of turnover will be indicative. If goods are bought on credit, then low turnover is not critical for the company. The main thing is that the refund period does not exceed the calculated value of the coefficient.

Types of trade

Exactly the same as prices are divided into retail and wholesale, the turnover is divided into similar two types. In the first case, we are talking about the sale of goods for cash or at standard prices, and in the second, the sale of goods by bank transfer or at wholesale prices.

Methods

In practice, the following methods of calculating turnover are used:

• Based on the consumption of goods by residents of the same area.
• Based on planned sales and average unit cost.
• According to the actual turnover of the organization (the most popular method).

Data for calculations are taken from accounting and statistical reporting.

Dynamics

The following formula for calculating turnover shows the change in the indicator at current prices:

D=(Fact of turnover of the current year / Fact of turnover of the last year)100%.

The dynamics of turnover in comparable prices is determined by the following formula:

D con=(Factturnover in comparable prices / Fact of last year's turnover)100%.

Example 3

Need to calculate the dynamics of turnover and the percentage of the sales plan. Data available:

- Turnover in 2015 – 2.6 million rubles

- Sales forecast for 2016 – 2.9 million rubles- Turnover in 2016 – 3 million rubles

Solution:

- Determine the percentage of the sales plan: (3/2, 8)100=107%.- Calculate the turnover in current prices: (3/2, 6)100=115%.

Price index

If prices have changed during the study period, then you first need to calculate their index. The value of this indicator increases under the influence of inflationary processes on the country's economy. The coefficient shows the change in the cost of a certain number of goods over a period. Price index formula:

Itz.=C new/ C old

This formula is often used by statistical authorities to analyze the level of prices for certain categories of goods. For example, the volume of goods sold in 2014 was 100 thousand rubles, and in 2016 - 115 thousand rubles. Calculate the price index:

Itz=115 /100=1, 15, i.e. prices increased by 15% over the year.

Only after these steps, the formula for calculating the turnover in comparable prices is used:

Fact=(Turnover at current prices / Turnover last year)100%.

Example 4

In 2015, the turnover of the company amounted to 20 million rubles, and in 2016 - 24 million rubles. During the reporting period, prices increased by 40%. Needcalculate the turnover using the formulas presented earlier.

Determine the wholesale turnover at current prices. Calculation formula:

Тт=24/20100=120% - trade turnover has grown by 20% over the current year.

Calculate the price index: 140%/100%=1, 4.

Determine the turnover in comparable prices: 24/1, 4=17 million rubles.

Formula for calculating turnover in dynamics: 17/20100=85%.

Calculation of the dynamics showed that the growth occurred only due to the increase in prices. If they had not changed, the trade turnover would have decreased by 17 million rubles. (by 15%). That is, there is an increase in prices, not the number of goods sold.

Example 5

Initial data for completing the task are presented in the table below.

	Trade turnover for 2015, thousand rubles	2016
		Forecast, RUB thousand	Fact. turnover, thousand rubles.
				Total	4560	5300	5480
				I quarter	1000	1250	1260
QII	1300	1290	1370
QIII	1100	1240	1210
IV kV	1158	1519	1640

Now you need to determine the turnover for the current year at the prices of the previous period.

First, let's determine the percentage of the sales plan fulfilled: 5480/5300100=103.4%.

Now you need to determine the dynamics of turnover in percentage terms compared to 2015: 5480/4650100=120%.

	Trade turnover for 2015, thousand rubles	2016
		Forecast, RUB thousand	Fact. turnover, thousand rubles.	Execution, %	In relation to last year, %
Total	4560, 00	5300, 00	5480, 00	103, 4	120
I quarter	1000, 00	1250, 00	1260, 00	100, 8	125
QII	1300, 00	1290, 00	1370, 00	106, 2	105
QIII	1100, 00	1240, 00	1210, 00	97, 6	109
QIV	1158, 00	1519, 00	1640, 00	107, 9	141

As a result of exceeding the sales plan in 2016, the company sold products worth 180 thousand rubles. more. Over the year, the sales volume increased by 920 thousand rubles.

Detailed calculation of retail turnover by quarters allows you to determine the uniformity of sales, to identify the degree of satisfaction of demand. Additionally, it is also worth analyzing sales by months to identify signs of a decrease in demand.

Retail turnover formula

Analysis of price changes by commodity groups provides for a quantitative and cost assessment of individual goods, determining the dynamics of their shifts. The results of the study are used to study the correspondence of supply to demand and influence the formation of orders.

The analysis of turnover is based on quarterly and annual reports. Based on the results of the audit, it is possible to establish the reasons why the turnover has changed. The formula for calculating the balance is given below:

Zn + Nt + Pr \u003d R + C + B + U + Zk, where

Zn (k) - stocks at the beginning (end) of the planning period;

Nt - commodity allowance;

Pr - arrival of goods;

R - sale of goods by separate groups;

C - disposal of goods;

B - natural decline;U – markdown.

You can determine the degree of influence of balance sheet indicators by calculating the difference between planned and actual indicators, or using the chain substitution method. At the next stage, retail turnover, the calculation formulawhich was presented above, is analyzed for changes as a result of improved labor productivity, an increase in the number of employees and the efficiency of the use of fixed assets. The analysis ends with the definition of sales growth prospects and a change in the structure of goods.