TURNOVER

ANALYSIS

PhD Dumitru D. Popescu

Definition

The turnover expresses the total revenues obtained by

a company from its current commercial activities and is
one of the most important indicator that shows the
economical performances of a company.

The turnover allows the determination of the market

position of a company, gives information about the
dynamics of the activity, about the chances of
development or about the importance of the company
within the sector of activity.

Operational ratios used in the turnover analysis

net turnover (T) it represents an indicator of the Profit and Loss Account, formed by
the total revenues obtained from the sale of goods and services from the current
activity of the company, including the subsidies from investments, after deducting the
trade discounts.

average turnover also known as

average selling price, represents the
revenue obtained from the sale of
one unit of good or service and is
computed
using
the
following
formula:

marginal turnover (Tm) expresses

the variation of revenues from sale
generated by the increase with one
unit of the physical volume of sales
and is computed using the following
formula:

T
T
Q
where Q represents the physical volume of sales

T1 T0
T
Tm

Q Q1 Q 0

break-even point (BEP) represents the profitability level

of the company and is the level of sales revenues necessary
for the total covering of the operating expenses. The
computation formula was established from the basic idea that
in the moment of reaching the break-even point, the profit is
null and the total expenses as compared with the volume of
activity is grouped in fixed and variable expenses.

BEP

FE

1 R VE

where:
FE represent the fixed expenses
RVE represents the ratio of variable expenses, respectively the average
variable expenses to 1 ROL turnover, computed using the following
formula:

R VE

VE

The analysis of the dynamics of

turnover

The analysis of the time evolution of turnover

can be done using the classical statistical
models
The study must contain information afferent to a
period of 3-5 years. On the basis of the
conclusions drawn from this analysis, there can
be established the development strategies of the
company for the following years, taking into
account the factors that can influence the activity
of the company
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1.

The analysis of the dynamics of the turnover for a time period (0, n)
is done on the basis of:
Fixed-base (FB) or chained-base (CB) absolute changes

TFB Tn T0 or TCB Tn Tn1

2.

Fixed or chained-based ratios

I TFB
3.

Tn

100
T0

or

I TCB

Tn

100
Tn1

Fixed or chained-based increase rate

R FB I TFB 100 or R CB I TCB 100

4.

Annual average increase rate

Tn
n 1
1 100

T0

The analysis of turnover over a longer period of

time gives information about the activity of the
enterprise and its trend
In order to be relevant for the establishment of
the development strategy of the company, the
dynamics of the analyzed company should be
compared to the dynamics of the market and of
the activity sector. If the market is more dynamic
than the company, it will be noticed that the
company will loose market share, either due to
the increase of the sales of the competitors at a
higher pace, or due to the entrance in the
market of new competitors.
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For a pertinent analysis of the reality it is necessary to adjust the

nominal indicators (current, statistical values) with the inflation
rate corresponding to the activity sector of the company.
The comparability of the data in time can be insured by deflating or
inflating the indicators
Deflation implies expressing the data of the analyzed period in
constant monetary units, afferent to the first year, considered the
base. The adjustment will be made on the basis of the following
relation:

TRn m

TCn m
Ip nm / 0

Where:
TR represents the real or comparable turnover
TC represents the current turnover
Ipn-m/0 represents the price index, reported to the first year of the
analyzed period

Inflation implies the adjusting of the value indexes to the last year of
the analyzed period, using the following formula:

TRn m TCn m Ip n / nm

Where:
Ipn/n-m represents the price index, reported to the last year
of the analyzed period
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The analysis of the turnover

structure

In the economic and financial analysis of high importance

in the determination of the causes and reserves of the
increase in turnover is the study of the sale structure
The structure of the turnover emphasizes the weight of
certain elements in the total sales of a company
The structural analysis can be done on different
elements, such as:

On types of activities
On groups of products/goods
On types of clients

Methodology

Determination of the weight of different elements

(products,
merchandises,
services,
activities,
departments etc.) in the total turnover, by using the
relative measurements of the structure:
Where:

t
g i i 100
T

gi represents the weight of i category in the total turnover

ti represents the turnover realized by i category
T represents the total turnover

Comparisons between the structure of the economic

activity for different financial periods, using the GiniStruck structure coefficient
G

Where:

2
i

n 1

n represents the number of terms of the series

gi represents the structure of sales on categories of activities,
groups of products, operating units etc.
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The Gini-Struck coefficient can take

values in the interval [0,1], having the
following significance:
G1

means that in the structure of the

activity of the company, a low number of
elements have an important weight in the
turnover,
or,
in
other
words,
the
concentration degree of the activity is high
G0 means that the sales are spread rather
even between the categories of structure of
the activity
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Factorial analysis of turnover

The scope of the factorial analysis of

turnover is the determination of
contribution of different factors over
change of turnover, as well as
substantiation of the solutions
improving the company performance

the
the
the
the
for

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The factorial analysis of turnover in

the case of production companies
1. Models that correlates human resources and turnover
a)
Where:
E represents the average number of employees

T E
-

Qd
E

T
Qd

Qd represents the production obtained intended for delivery

Qd / E represents the average annual labor productivity
(computed on the basis of the production intended for delivery)
T / E represents the degree of capitalization of the production
obtained intended for delivery

any change in one of the three factors have an influence in the

same way over the turnover
the factorial analysis is done using the chain substitution
method for the comparison of the effective results with the
ones from the reporting base
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b)

T E

E op
E

Qd
E op

Qd

Where:
Eop represents the average number of operating
employees
Eop / E represents the weight of the operating
employees in the total number of employees of the
company
Qd / Eop represents the average productivity of the
operating employees

- The turnover analysis taking into account the influence

of the average number of operating employees is
important because it is well known that the operating
employees are directly involved in the production
process and thus the efficiency of the human
resources is determined in a great proportion by the
weight of the operating employees in the total number
of employees
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c)

T E Ed Eh Ph

Where:
Ed represents the average number of days worked by an
employee in the analyzed period
Eh represents the average number of hours worked by an
employee in one day
Ph represents the average hour productivity of one
employee

E Ed Eh
Ed Eh
Pd Eh Ph

Pa Ed Pd

- is the total work time of the company (man hours)

- is the average working time of one employee (hours)
- is the average daily productivity
- is the average annual productivity

This model emphasizes the way of utilization of the work time, from a
quantitative point of view, as well as from a qualitative point of view.
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2.

a)

Models which express the correlation between the

technical potential of the enterprise and turnover
FA

Qd

T
T E

E FA Qd

Where:
FA average value of fixed assets
FA average annual value of directly
productive fixed assets
FA / E degree of technical endowment of
labor

b)

FA

FA '

Qd

T
T E

E FA FA ' Qd

FA / FA weight of directly productive fixed

assets
into
the
total
fixed
assets
(technological content of fixed assets)
Qd / FA efficiency of directly productive fixed
assets (production obtained intended for
delivery to 1 m.u. of fixed assets)

The degree of technical endowment of labor is a relevant indicator for the

enterprise, because it reflects the result of the investments made. It is obvious
than, in the context of a dynamic market economy, characterized by a very
harsh competition, the company with the best investment power and with higher
technical endowment of labor will win in the battle for market share. This has a
direct positive effect over the labor productivity and an indirect effect over the
results of the company.
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3.

Models which express the correlation between

turnover and the degree of providing current assets
(raw materials, consumables etc.) to the workforce
I

T
T E
E I
Where:
I / E emphasizes the average value of inventory afferent to one
employee or the degree of providing inventories to the employees
T / I expresses the inventory turnover (number of rotations)
In this model, it is important not only the value of current assets, but
also their structure, because the realization of a product implies the
necessity of providing all the material resources involved in the
production process.

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Models which express the correlation between the

volume of the production sold and turnover
According to the characteristics of the production, we have:
4.

a)

Homogenous production, with differences of models, qualities etc.

Where :

T Qp

pi

100

- the average unit price

Q - the physical volume of the production sold

g i the structure of the production sold, by products
p i the sale price of type " i" production
b)

Non-homogenous production

q v

pi

Where:
q x vi the volume of the production sold for type i
products

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The consequences of changes in turnover over

the main economical and financial indicators
1.

Influence over the gross profit

T (T1 T0 ) pr0

2.

where :
P
pr - average profit to 1 m.u. turnover ( )
T

Influence over the salary expenses

where :
1
(1,000 )
T
T1 T0 SE 0
SE (1,000 ) salary expenses to 1,000 lei turnover
1,000

3.

Influence over the return on assets

(T1 T0 ) pr0
T
100
TA 1

where :
TA total assets
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4.

Influence over the current assets turnover

CA 0
CA 0
T
t
t
T1
T0

where :
CA current assets
t analysis period

5.

Influence over
utilization
T

6.

T1
FA 1

1,000

the
T0

efficiency of

fixed

assets

where :

1,000 FA average value of fixed assets

FA 1

Influence over the labor efficiency

T

T1 T0 pr0
E1
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7.

Influence over the total expenses (variable, fixed etc.)

T

1
T1 T0 E(01,000 )
1,000

E(1,000 )

8.

E
1,000
T

where :
E(1,000 ) ratio of exp enses
to 1,000 lei turnover

Influence over the commercial margin

T

Cm

1
T1 T0 Cm 0
100
Cm
100
T

where :
Cm commercial m arg in ratio
Cm commercial m arg in

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