Turnover Ratio

Turnover Ratio

In the context of an investment fund, the turnover ratio measures the fund’s trading velocity by calculating trading volumes over a given period as a proportion of the fund’s average assets over the same period. A buy-and-hold fund will be expected to have a turnover ratio closer to the zero bound. An actively managed fund may well have a turnover ratio in excess of the fund’s size. The fund’s size is a critical factor in calculating turnover, especially in the case of a fund that is adding new assets rather than trading existing underlyings. In a company context, analysts and company accountants track their account receivables and account payables turnover to calculate how long it takes on average to collect and pay receivables (and take steps to minimise receivables turnover by tightening supplier credit terms). A/R turnover is the accounts receivable (averaged over year) as a proportion of net sales. A/P turnover is average purchases on credit divided by average A/P.

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