How to Calculate Turnover Rate

Turnover rate or turnover ratio is a measure of how quickly an asset is replaced during a given time. Turnover may refer to several things, but most often refers to inventory, accounts receivable or employees. In finance, asset turnover ratio refers to how fast the shares in a fund are sold and replaced. Turnover rates are usually measured over a period of a year, but it is sometimes useful to use a shorter period, such as a month.

Things You'll Need

• Asset records

Instructions

1. Determine the average level of the asset present during the time period. For example, to calculate inventory turnover, you first find the average dollar value of inventory on hand. The most common method of doing this is to take the starting inventory value and add it to the ending inventory value. Divide by 2 to estimate average inventory value.

2. Add up the total amount of the asset or resource acquired or expended during the time period. For determining inventory you would find the total cost of inventory purchased. If you are measuring employee turnover, you want the number of employee separations for the period.

3. Divide the total assets acquired/expended by the average asset level to calculate the turnover rate. For example, a retail store with an average inventory valued at $750,000 and annual inventory cost of $3.0 million would have an inventory turnover ratio of $3 million divided by $750,000, or 4 to 1.

Tips & Warnings

• Whether a given turnover rate is viewed as good or bad depends on the nature of the asset. Rapid inventory turnover may reduce storage and inventory financing costs. Rapid employee turnover, by contrast, may result in higher training costs and a less experienced and productive work force.

References

• Investopedia: Portfolio Turnover
• Investopedia: Turnover Ratio
• HR Village: Employee Turnover

Resources

• Bizwiz: Inventory Turnover Ratio