Difference between Turnover and Profit

Key Difference: Turnover represents the value of goods and services provided to customers during a specified time period. Profit is basically the revenue minus the costs incurred.

The term turnover and profit are often essential to understand when running a business. Understanding these terms can result in running the business successfully. Turnover and profit are confusing terms, with many people believing them to be the same or at least similar in nature. However, these two terms indicate different things.

Turnover refers to time times a business runs through an asset, including cash, sales, inventory and workers. Turnover is the amount of times a company will have to refill or replace that product. In terms of cash, turnover is the amount that a company bears in order to produce the product from beginning to ending. This amount should be significantly less or reduce over time. Sales turnover represents the value of goods and services provided to customers during a specified time period.

Inventory turnover is the number of products that are being not being held in the inventory of the company. This turnover is calculated by dividing cost of goods sold by average inventory. Labor turnover is the amount of people that are hired or fired in an accounting period. A high labor turnover results in the company spending more time and money in order to train the people, a lower turnover results in higher profits and also company loyalty.

When we discuss turnover in comparison with Profit, we are discussing the Sales turnover, where the company calculates all it earns by selling products and services. It is commonly referred to as simply sales.

When we discuss profit, we must talk about the two types of profits that a company deals with: Gross Profit and Net Profit. Profit is basically the revenue minus the costs incurred, or in a simpler language, everything a company earns minus everything that the company pays.

Gross Profit is basically the simple definition of profit. Now, if a company buys a product for USD 200 and sells it for USD 400, they profit would be USD 400- USD 200, resulting in USD 200 as profit. They must minus the cost of the goods sold, or mainly deduct the price at which the company bought that particular good. In services, where there is no product, gross profit remains the same as turnover.

In addition to purchasing the good and selling it, the company also incurs other costs such as marketing, taxes, overheads, labor, etc. These are also costing the company. In order to get a true account of how much money the company actually earned, the company must also deduct these costs. So, net profit is the money that remains after deducting everything including deprecation of land and machinery. After every cost is deducted, the amount that is left is the true profit, or net profit, of the company.

Comparison between Turnover and Profit:

 

Turnover

Profit

Definition

Turnover represents the value of goods and services provided to customers during a specified time period

Profit is basically the revenue minus the costs incurred

Types

Sales, Cash, Inventory and Labor

Gross Profit

Net Profit

Image Courtesy: corporatewellnessmagazine.com, footyprofit.co

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