Why is it important to know the difference between turnover vs. revenue
It's essential to know the difference and overlaps between turnover and revenue because of the following three reasons:
1. Financial reporting
It is essential to understand and calculate revenue since it helps companies determine their growth and sustainability. It's also a performance metric for comparing the current financial year with previous periods. Therefore, it's critical to track all revenue flowing through the company and recognize it correctly.
2. Planning future business activities
Knowing the total revenue earned for the year allows companies to plan for and allocate money for the next financial period. On the other hand, understanding turnover enables enterprises to manage their production levels and ensure no idle inventory for extended periods. It also helps in planning for and assigning resources to improve efficiency.
3. Reporting to shareholders
Companies must report their revenues in the income statement, which is accessible to shareholders. Furthermore, calculating turnover ratios and including them in the financial statements helps shareholders understand them better.