MODERN ASPECTS OF TURNOVER

Timaru Herald, Volume CXLVIII, Issue 21576, 12 February 1940, Page 2

MODERN ASPECTS OF TURNOVER

AN ACCOUNTANT’S REVIEW Mr W. G. Cain, of Auckland, has a helpful article on business turnover in the current issue of the New Zealand “Accountants’ Journal.” “To many retailers,” he writes, “the term ‘Rate of stock Turn’ is shrouded in mystery. Some perhaps think that it means the effort of lifting goods off shelves, dusting, and replacing them. Perhaps there are a few still in business whose great aim is to ‘do figures’ and hope for a profit. They are lucky to be afloat in these days of keen competition and efficient methods. Nowadays it is not so much a matter of ‘how much did we take and what did we do last year,’ but ‘how much did we make and what are our plans for the year ahead?’ The old notion too, of buying goods more or less on impulse has had to give way to a greater degree of planned economy.

“Properly planned buying results in quicker quittance of stocks, lessening of the amount of ‘dead’ stock, and, through quicker sales, to quicker reinvestment of capital. By enabling the same volume of sales to be made on a smaller amount of capital outlay (possibly owing to more frequent re-investment of the same capital) dividend earning possibilities are greatly enhanced. As an illustration, consider the case of two businesses, each with a turnover of £30,000. ‘A’ has an average capital investment of £lO,OOO in stocks, while ‘B’s’ average is £15,000. ,‘A’s’ stock turn is three times, ‘B’s’ only two. By conceding the same rate of markup and operating expenses, it is obvious that the ‘A’ company will yield a better return to its than will ‘B,’ because, although earning.', are the same in each case, a smaller amount of dividend earning capital is involved in ‘A’. “Turnover, or sales volume, is but one component of the rate of stock turn, and it must not be supposed that increased turnover of itself results in greater rate of stock turn. It is quite possible to show an increased rate of stock turn on a reduced volume of sales, at the same time producing a greater profit yield, this without increasing the rate of markup, but by more efficient use of capital. Rates of stock turn are ascertained by dividing into the year’s turnover the figure representing the average value of stock held. This latter figure is obtained either from periodical stock inventories if these are undertaken at frequent enough intervals as is the case in some classes of present day businesses, or by regularly working up estimates of the stock position at monthly or more frequent intervals. If twelve sets of figures are available over a year’s trading, obviously the average of these will be the value of the average stock held, Both factors In the calculation must be expressed on the same basis —either average stock at cost must be converted into selling and divided into the gross turnover, or stocks at cost must be divided into sales reduced to cost.”