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What Is Company Turnover?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 05 July 2014
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The term “company turnover” can have several different meanings, which may refer to revenue, utility of assets, or employees, depending on the context. In all cases, the term involves the number of complete replacements within a given accounting cycle, whether of company staff or products for sale. The context can determine whether low or high turnover is more desirable, and companies may report on key numbers in annual reports and other disclosures to investors and staff to provide them with information about the company's overall health.

In the sense of employee turnover, the term describes the number of times the staff members are replaced within a given period. At a company with 30 employees where 15 leave each quarter, turnover is high. Conversely, if one employee leaves every five years, the company has low turnover and overall longevity. This form of company turnover is usually viewed most favorably when it is low, because this suggests the company is a pleasant place to work and employees do not wish to leave.

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Some regions use this term to describe overall revenues. High company turnover indicates large sales volume, while low turnover can imply the company has difficulty moving products and services. One advantage to accounting from a turnover perspective is the ability to account for a company that sells in small volume, but at high value. Hearing that a company landed one sale for the year is not very impressive, unless that sale happens to be something like a very expensive cruise ship and the company actually has a very respectable turnover rate.

Another form of company turnover is asset turnover, where accountants look at how efficiently a company uses assets. This is determined by dividing total revenue by the value of assets. High asset turnover shows that companies move assets through quickly to make them profitable, while low turnover illustrates that the company retains them. This is not necessarily a sign of economic problems, however, as a company may be focused on an investment and growth period to improve revenues in the future.

In discussions of company turnover, it is important to find out what is meant by this term, because it can be so variable. Sometimes this is evident from context; in discussions about employment conditions, for example, people usually mean employee turnover when they discuss the turnover rate. If the meaning is not evident, it may be advisable to ask for clarification. It can also help to find out what kinds of measures are being used to calculate turnover, as this may have an impact on the meaning of the data.

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