Turnover importance in business

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PINJERA KISHORE (Querist)
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30 November 2013 Dear Sir,

Can anybody tell, in what way the turnover of the company plays a key role related to PBT, PAT, Depreciation.

Hitendra Jain

Hitendra Jain (Expert)
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30 November 2013 Turnover is critical factor to compute profit before tax and after tax. If turnover is NIL then PBT PAT can not be computed.

Profit is the part of Gross Receipt which remains if all related expenses have been deducted.

Tax represents the share of Gross Earning which would be contributed / paid to the government if there is any portion of gross earning remain after deducting all expenses.

Depreciation is portion of Fixed assets which apportioned during life time of assets and also represents consumption of Fixed Assets to generate revenue during given period.

If amplitude of Turnover is such that a significance portion is remain after deducting Depreciation and Tax then turnover is considered good.

It is further compared with previous period figure for constancy in operation and reason of variance.

Ramkrishna Mokashi

Ramkrishna Mokashi (Expert)
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30 November 2013 The Answer from Hitendra is quite detailed and elaborate. Thanks Hitendra for the same.

Just to add one perspective to that:-
Purely from Business end, Turnover is key to everything. You will not hear about a company which does not achieve turnover and still adds value to shareholders. The first thing for any business to improve, to come out of losses, is to improve the turnover. Increased turnover means better asset utilization, better utilization of head count in marketing and sales functions, etc. Cost reductions, etc comes in later. If the turnover improves, the financial ratios such as PAT, ROE, etc improves.

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