Turnover vs Profit

Updated July 31, 2023

Difference Between Turnover vs Profit

The Turnover is indicative of the growth prospects of a business, whereas profits, in addition to the growth prospects, also give an impression of how the management controls different costs.

Turnover, Topline, Revenues, and Sales are defined as the company’s gross earnings in a period (for simplicity purposes, I will take an annual period). Profits are the net proceeds from the sale of products after accommodating all the expenses.

Turnover

Turnover stated in the income statement can be classified as either:

Operating Turnover

Operating Turnover constitutes part of the main operations of a company. If I talk about the operating Turnover of an automobile company, then the operating Turnover will primarily be the proceeds from the sale of vehicles.

Or another example of a movie business where the core business will be Turnover from the box office, food, and beverages

Non-operating Turnover

Taking the above example of an automobile company, earnings from current investments in mutual funds, liquid funds, asset value appreciation, fixed deposits, etc., constitute non-operating income.

Turnover is mathematically defined by the selling price of a product and the number of products sold. By analyzing the annual trends of Turnover in the annual reports YoY basis, the growth prospects of a business can be guessed. The expansion plans of a company ignite hopes of inflated Turnover. Turnover forms the basis of the income statement. All the calculations are based on this single number.

For instance, if an automobile seller sells a single model for a car that has a selling price of INR 300,000 and a total of 100 cars were sold in that period (one year), then the Turnover of the company will be

• Turnover of the company = Selling cost of product * number of products sold.
• Turnover of the company = 300,000*100
• Turnover of the Company = INR 30,000,000

Some important ratios are related to a company’s turnover, for instance, the receivables turnover ratio. Also, when valuing a business, many parameters are forecasted based on Turnover. For instance, other income is taken as a % of operating income.

Profits

Profit is a product of Turnover. The expenses that stand between Turnover vs profits are:

• Cost of goods sold – The cost incurred to manufacture and sell the product
• Employee benefit expenses – Employee welfare costs
• Depreciation and Amortization costs – Noncash costs related to the wear and tear of the product
• Finance costs – Cost incurred because of financing via external sources
• Taxes – Income tax payable to a government

Profits are dependent on Turnover. The above-mentioned costs are subtracted from the total Turnover from operations to get to profits. If the difference is positive, then the company is said to have made profits; else, the company is said to have booked losses. Profits are crucial for investors because of a critical ratio that woos investors. The ratio is ROE, i.e. Returns on equity, defined by the ratio of net profits and total shareholders’ equity.

If let’s say, in the above automobiles example,

• Cost of goods sold (COGS) = 5,000,000
• Employee benefit expenses = 6,000,000
• Employee benefit expenses = 5,000,000
• Finance costs = 3,000,000
• Taxes = 4,000,000
• Total expenses = Cost of goods sold (COGS)+Employee benefit expenses+Employee benefit expenses+Finance costs+Taxes
• Total expenses = 5,000,000 + 6,000,000 + 5,000,000 + 3,000,000 + 4,000,000
• Total expenses = INR 23,000,000

Above, we get a Turnover of the Company

Hence, Now we have to find the total profits generated by the business are:

• Total Profit = Turnover – Costs
• Total Profit = INR 30,000,000–INR23,000,000
• Total Profit = INR 7,000,000

In this way, profits are calculated for a business. And the Total Profit as we get by the calculation is INR 7,000,000

Head To Head Comparison Between Turnover vs Profit (Infographics)

Below is the top 7 difference between Turnover vs Profit

Key Differences Between Turnover vs Profit

let us discuss some of the major Difference Between Turnover vs Profit

• Turnover is the amount that a business earns from selling its core products and the non-operating income from other sources, whereas profits are the by-products that come into play after all the costs have been taken care of.
• Turnover is independent of profits, but profits are dependent on Turnover. Hence, the more the Turnover, the more is, the more the profit is subject to great control over variable costs.
• Profits can be of either gross or net type. Gross profit is attained after subtracting COGS from Turnover. On the other hand, when we talk about net profits, it is the subtraction of all the costs involved from Turnover.
• Both Turnovers vs Profits can be found on the income statement. Turnover is at the top, whereas profits are at the bottom of the income statement.
• The difference in the way these parameters are calculated mathematically also lies.

Turnover vs Profit Comparison Table

Below is the 7 topmost comparison between Turnover vs Profit

The Basis Of Comparison	Turnover	Profit
What is it?	The gross proceeds from sales made by a company in a particular period (usually a month, quarter, or year)	The net proceeds are left after accommodating costs such as COGS, SG&A (Selling, general and administrative) expenses, Depreciation, Taxes, etc.
What are the other names?	Revenue, sales, Topline	Net income, net profits, profit after tax, the bottom line
Formula	(Unit selling price)* (Number of units sold)	Turnover – Costs
Position	Turnover is the superior one.	Profit is a product of Turnover.
Dependency	Turnover is independent of profits.	Profits depend on Turnover because, without Turnover, there cannot be profits.
Types	Turnover can fall under- Turnover/Revenues from operations Non-operating Turnover/Revenues	Profits are mainly classified as – Gross profits Net profits
Where do these exist?	Topmost position in the Income statement	Bottommost position in the Income statement

Conclusion

Now we are clear about these two terms as to how these are different from each other and how one of these depends on the other. However, profits are significant for a company because it decides if the company can stay for a long time in the business. But it is the Turnover from where profits are born, and hence the magnitude of profits will be determined by the magnitude of Turnover and the costs that lurk between these two parameters. Increasing costs will cause a higher share of turnover to be cut, consequently reducing net profits.

Recommended Articles

This has been a guide to the top difference between Turnover vs Profit. Here we also discuss the Turnover vs Profit key differences with infographics and a comparison table. You may also have a look at the following articles to learn more –

1. Costs vs Expenses
2. Dividend vs Growth
3. Gross Income vs Net Income
4. EBIT vs Net Income