Welcome to today’s class!!
We are thrilled to have you in our class!!
In today’s Store Management class, we will be learning about Calculation of Rate on Turnover
Calculation of Rate on Turnover
Understanding how a business is performing financially is key to gauging its success. Turnover is considered one of the easiest metrics to understand and will provide insight into whether a company is smashing its financial goals or not.
Turnover is calculated by adding up all business income over a set period, including all sales of goods and services.
Annual turnover is easy to calculate, provided that a business keeps accurate records of its sales. Most businesses do this anyway for tax purposes. Calculate turnover as the total amount before taking off fees or commission. This ensures you generate an exact turnover figure when applying for Value Added Tax (VAT) or a tax return.
It’s important to note that you can also calculate business turnover for other set periods in time rather than per annum, such as per quarter, half-year and financial year. Annual turnover by itself doesn’t dictate the success of a business. It’s considered a valuable measure when compared with other metrics as it shows how well a business is growing. Once you’ve calculated your annual turnover, you can use it as a base figure to work out the net profit or gross profit of a business.
Knowing how to use annual turnover to work out the net and gross profit of a business is important. Doing so can help you determine whether a business is spending too much on its operations or selling processes. You can use annual turnover to calculate the gross profit by deducting the cost of goods sold from the turnover. You can then calculate the net profit by deducting all operating costs and tax liabilities from the gross profit.
Here’s an example to facilitate understanding:
A furniture company has an annual turnover of N500,000. The cost of goods sold (COGS) is N65,000 and the operating expenses equal N20,000. They want to use this information to find out their gross profit for the year.
They use the following formula: Gross profit = annual turnover – COGS This translates into: 500,000 – 65,000 = 435,000 This means that the company has a gross profit of N435,000.
Now the company wants to calculate its net profit. They use the formula:
Net profit = gross profit – operating expenses This translates into: 435,000 – 20,000 = 415,000
This means the company has a net profit of N415,000.
Last year the company’s annual turnover was N450,000, the gross profit was N420,000 and the net profit was N400,000. The company has managed to increase its gross profit but decrease its net profit. This indicates they could reduce operating costs by cutting administration costs and checking their tax rates.
In summary, annual turnover can refer to the number of employees that leave a business during the year. This is otherwise known as churn rate or labour turnover. This metric is more important for large businesses that want to compare staff turnover rates to staff retention rates.
Why is Turnover considered important?
How do you calculate a Turnover?
What are the results of calculation of rate on turn over?
We hope you enjoyed today’s class. In our next class, we will be talking about the Meaning of Risk Management.
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