We live in a world of binaries: zero or one, black or white, good, or bad, yin or yang and hero or villain. The inevitable need to pick sides spares no one. Similarly, when it comes to business terms, you like to look at them from a serene balcony of clarity. They must mean either this or that. I know you cannot take the pangs of confusions. The confusion you and I will put to rest right here right now is that between turnover vs revenue.
Just when you think you are beginning to grasp the difference, you come across a cheeky fellow using them interchangeably. As if they mean the same thing. Well, news for the cheeky fellow: they do not.
The mistake of taking them to mean the same is highly likely because Turnover and Revenue often correlate. However, they are still technically different.
You can find below the key differences between turnover vs revenue as well as the essence of relating the two terminologies.
Definitions and Meaning
First, it is important to define and understand the two as any well-explained problem is half-solved.
- Turnover: It is the number of times a company or business burns through assets such as cash, inventory, and employees. This determines the efficiency and effectiveness of a business in properly supervising resources. Using turnover businesses can track their cycle of sales, purchases, and inventory re-orders.
- Revenue: It represents the money a company or business generates by selling products or services. The revenues of the non-profit-making companies are different from other companies. The former additionally includes subscriptions, donations, and membership fees etc. Furthermore, non-operating money also counts as revenue, for example, commission, interest, or the sale of fixed assets, investments, and scrap material.
What are the Differences Between Turnover vs Revenue?
So far, you must be able to tell that it’s not your everyday Tomayto/ Tomahto or Potayto/ Potahto debate. Those are separate ways of referring to the same thing. This over here is a matter of tangible differences. Turnover and Revenue are two separate worlds.
Turnover refers to the total amount of money that comes into an organisation in a certain period. On the other side, revenue counts the money that the business generates by selling its products and services. Let’s find out how the types of turnover vs revenue.
Turnover affects the efficiency of the business, whereas revenue affects the profitability.
Main Types of Revenue and Turnover
You can know a tree better once you acquaint yourself with its branches. In the same spirit, let’s get into the types of turnover vs revenue. Doing so will further breakdown the understanding of the two for you.
Types of Revenue
- Operating revenue
As the name gives away the idea, it is the form of revenue that a company earns from its regular business activities.
- Non-operating revenue
Unlike operating revenue, this is the additional revenue that a company earns from its regular activities, such as rent or dividends.
Types of Turnovers
1. Asset Turnover
Asset turnover is the calculation of the revenues of the company in proportion to the value of its assets. It is also called the asset turnover ratio. This ratio indicates the efficiency with which a company utilizes its assets to generate revenues.
In simple words, we can say there is a direct proportion between the growth of the company and assets turnover. The higher the asset turnover and the greater the chances the company growing more profits. While on the other hand, if the asset turnover is low less efficiency is indicated. Eventually, this leads to less revenues.
2. Inventory Turnover
Inventory turnover is a metric used to assess the operational capacity and supply chain of a company. It relates to how a company is generating sales, using inventory. It is truly relevant within supply chain management as the chain of supply directly cut through the inventory.
3. Receivable Turnover
Receivable turnover exists as a policy in companies that offers sales to customers on credit. It measures the status of a company on collecting the sales made on credit. This means that the rate of turnover is high when the proportion of receivables to sales is low.
Reporting Revenue and Turnover
Businesses record both revenue and turnover in their financial statements, but their relevance and purpose differ.
- Reporting turnover: it is not mandatory to report turnover in the financial statements. Instead, companies calculate certain ratios to assess the production efficiency and better understand the financial status of the company.
- Recording revenue: Revenue is a first line item that is reported on the income statement. Hence keeping its record is mandatory for all companies.
Is it Important to Know the Difference Between Turnover vs revenue?
This is why you must not be the cheeky fellow we talked about earlier:
· Financial Reporting:
Calculating and understanding revenue is important to determine the growth and stability of all companies. It is like a performance indicator to compare different years. If a business wants to grow, it is imperative for it to track and correctly recognise all the revenues flowing through the company. So, you can understand turnover vs revenue in detail.
· Planning Future Business Activities
Calculating the total revenue, a company earned for a given year matters. It helps to allocate money for the next fiscal year. Also, understanding the turnover helps in planning and assigning resources to maintain efficiency.
· Informing the Shareholders
It is mandatory for companies to report revenue in their income statement, which is easily accessible to all shareholders. Furthermore, including turnover ratios in the financial statements provides a better understanding to the shareholders.
Here’s a simple roundup. Revenue is the money that a business or company earns by selling services or products. While turnover is the capacity of a business to make assets in a definite time. Thus, revenue affects the profitability of the company, while turnover affects its efficiency.
There is no denying that differences between turnover vs revenue are complex and many. But telling them apart is essential for businesses to survive and thrive.