Turnover Generally

Turnover Generally

Turnover. (a) Generally, the total value (price multiplied by number of units) sold or 'turned over' by a firm in a year (or other period). (1,) More specifically, the rate at which goods are sold or 'turned over'. Turnover, or stock-turn, is important in an economic sense because it indicates the amount of capital locked up in stock and adding to costs by requiring interest to be paid on it. In retailing, some goods like food turn over much more quickly than others like furniture. An increasing turnover reduces the amount of capital locked up in stock. Whether it is better to have a higher than a lower rate of stock-turn depends on the costs of raising it, e.g. by advertising. An increase in turnover may be achieved by reducing the retail margin (the gross profit added to the wholesale price) and therefore the retail price. A lower margin will reduce the earnings on a unit sold but may increase total earnings by raising stock-turn and thus causing the capital used in holding stock to turn over more quickly.

Turnover Tax, one on gross sales revenue from business transactions. Unlike a sales tax, which is levied only on gross value at the point of retail sale, a turnover tax is levied on all intermediate transactions between businesses leading to and including the final sale. A shirt may sell for 40$., representing £25,000's. worth of services contributed each by the supplier, weaver, manufacturer and distributor who helped to produce it. But if each was a separate business entity the sum of gross sales transactions at all stages of production would be £11.27. The taxable base of a turnover tax is thus much larger than that of a sales tax (£5,000.), and the rate of tax will be correspondingly lower. Its economic disadvantages are that, even when levied at a uniform rate on all commodities, it raises the price of some disproportionately (depending on the number of intermediate transactions) and thus distorts the pattern of production and consumption. A uniform rate sales tax (if everywhere fully passed on by sellers) would not have this effect. Also, attempts to avoid tax payment might tend to lead to the integration of production processes and firms even when it lowered economic efficiency.

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