Sales turnover measures how often and how much of a company’s finished goods are sold within a specified time period. High turnover rates lead to lower taxes and better cash flow, while low turnover rates indicate a need for changes to balance sales and production. Historical turnover can be used to adjust production schedules.
Sometimes called inventory turnover or inventory turnover, a sales turnover is a measure of how often and how much of a company’s finished goods are sold within a specified time period. Companies can assess sales turnover monthly, quarterly or even annually, depending on the nature of the products sold and the operating structure of the business. Determining sales turnover over a period or even a succession of periods can help the company make adjustments to production that help prevent high inventories of finished goods from sitting in warehouses, or help the company adjust production so that there are finished products. enough hands to meet consumer demand in the coming periods.
With a sales turnover, the ultimate goal for any business is to achieve a high turnover rate. When turnover is high, it means that a significant percentage of available finished goods are being sold quickly rather than sitting in storage for a long period of time. The benefits of high sales turnover include lower taxes on finished goods in storage and possibly a reduction in the amount of warehouse space that must be leased to house these products between production and sale. At the same time, high turnover also means that the resources invested in manufacturing the products generate a faster return on customer sales, allowing the company to enjoy a more desirable level of cash flow.
On the other hand, a low sales turnover is often a sign that the company needs to make some changes. Low turnover means that sales to consumers are not in balance with the production rate, resulting in higher inventories of finished goods. This translates to higher taxes on the volume of finished products, more storage expenses to house the products until they are finally sold, and a longer period of time to generate revenue from the resources used to create the finished products. When there is a low sales turnover, the company will look for ways to promote additional sales and, at the same time, will take steps to reduce production to some extent, at least until the overabundance of finished products is reduced to a reasonable level.
As sales can change in volume from one period to the next, companies can track historical turnover as a means of projecting what will happen in future periods and adjust production accordingly. For example, if a company typically experiences a drop in sales during the third quarter, starts to recover during the fourth quarter, and then sees a dramatic increase in demand during the first quarter of the following year, production schedules can be adapted to meet the trend and help keep sales volume a bit more balanced from one quarter to the next.
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