In business terminology, turnover is generally understood to mean revenue, not profit. It represents the total amount of money a company receives from its sales of goods or services over a specific period.
Turnover (Revenue)
Definition
Turnover, often referred to as revenue, is the total income generated from the sale of goods or services related to the company’s primary operations. It is the gross income received by the business before any expenses are deducted.
Key Points
- Sales Income: Includes all money received from selling products or services.
- Period Measurement: Calculated over a specific time period, such as monthly, quarterly, or annually.
- Gross Figure: Represents the total inflow of cash without accounting for any costs or expenses.
Example
If a company sells 1,000 units of a product at £50 each, its turnover (revenue) is £50,000.
Profit
Definition
Profit is the amount of money that remains after all expenses, taxes, and costs have been deducted from total revenue. It reflects the financial gain or loss of a business over a specific period.
Types of Profit
- Gross Profit: Revenue minus the cost of goods sold (COGS). It measures how efficiently a company uses its materials and labor to produce and sell products profitably.
- Example: If the cost to produce the goods sold is £30,000, the gross profit is £20,000 (£50,000 – £30,000).
- Operating Profit: Gross profit minus operating expenses such as wages, rent, and utilities. This figure indicates the company’s ability to generate profit from its core business operations.
- Example: If operating expenses are £10,000, the operating profit is £10,000 (£20,000 – £10,000).
- Net Profit: Operating profit minus all other expenses, including taxes and interest. It is the actual profit after all expenses have been paid.
- Example: If additional expenses total £2,000, the net profit is £8,000 (£10,000 – £2,000).
Key Differences
Turnover
- Represents total sales income.
- Does not account for any expenses.
- Gross figure showing the scale of business operations.
Profit
- Represents financial gain after all expenses are deducted.
- Net figure showing the actual earnings.
- Includes various levels such as gross, operating, and net profit.
Turnover and profit are distinct financial metrics, both crucial for evaluating a company’s performance. Turnover refers to revenue, indicating the total income from sales. Profit, on the other hand, represents the remaining income after all expenses, revealing the company’s financial health. We hope you now understand whether turnover is profit or revenue and knowing that it is essential for accurate financial analysis and decision-making.
Leave a comment