What is the difference between turnover and profit?

The company's turnover is the amount of income it has received in a certain accounting period. The profit is the amount remaining after deduction from the turnover that originated in its earning. Gross profit is the amount of income obtained from the sale of minus direct production costs such as materials and direct work costs. Net profit is deducted from gross profit of indirect expenditure, including overhead costs. Net profit is therefore a net amount obtained by the company in the accounting period; Other payments such as taxation or dividends may also come from these funds. If the company cannot earn profits, it cannot continue in the long term. A profitable company can generate cash for further investments and can remain in a liquid position. Investors in time may want to see an increase in turnover and profit to ensure that they get a satisfactory return on their investment. Increasing turnover does not guarantee growing profits, especially if the company is unable to control its costs.

The relationship between turnover and profit depends on the industry in which the business works. The level of turnover needed to obtain a healthy profit may vary from one industry to another depending on the profitable sales range. Businesses in a very competitive sector, such as retailers with food, can only earn a small amount of profit after deducting direct and indirect costs. Businesses such as service stations and supermarkets must maintain a high annual turnover to ensure that they make sufficient profits. Other types of business, such as fashion clothing stores, quality furniture shops and some Industries, make a high sales range and can get satisfactory profits from lower turnover.

Management decision must take into account the effect that these decisions will be on turnover and profit. For the growth of business, management must not focus only on increasing annual turnover; They must also look at the cost control and thus increase profits. Continuation of the product line forThe loss will increase the turnover, but even increase the costs and therefore reduce profits. The management should interrupt the loss product to increase profits, but if it focuses only on turnover, it may not be decided to stop producing this item. If incentives for managers are based on sale and turnover rather than profits, unprofitable turnover contracts can accept in the short term, even if the profits are reduced in the longer term.