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THE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & LifestyleTHE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & Lifestyle


Annual Turnover: Definition, Formula for Calculation, and Example

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Annual Turnover: What Is It?

The percentage rate at which ownership of something changes over a year is known as annual turnover. This rate may be based on a company’s annual turnover of its assets, receivables, payables, or receivables.

A mutual or exchange-traded fund (ETF) turnover rate in investments refers to the frequency with which the investment holdings are changed. Comparing assets under management (AUM) to the inflow or outflow of a fund’s holdings is known as portfolio turnover. The number can be used to gauge how frequently the fund changes the underlying positions of its assets. A fund that is actively managed will have a high figure turnover rate. Other funds are less active and have lower holding turnover rates. A passive holding fund is something like an index fund.

How to Determine Annual Turnover

Determine the total quantity of assets bought or sold (whichever is larger) during the year before calculating the portfolio turnover ratio for a particular fund. Subtract that sum from the average amount of assets owned by the fund during the same year.

For instance, the computation is as follows if a mutual fund had $100 million in assets under management (AUM) and $75 million of those assets were liquidated at some time over the measurement period:

​Portfolio turnover = average assets max {fund purchases fund sales}

It’s vital to remember that a fund with a 100% yearly turnover may not have liquidated every position it had at the start of the year. Instead, the total turnover considers the frequent switching between positions and the fact that the total AUM for the year is equal to the sales of securities. The quantity of securities purchased during the measurement period is another way to calculate the turnover rate using the same algorithm.

Investment Turnover on an Annualized Basis

An estimate of the future using a month’s investment turnover (or any other shorter time frame) is called annualized turnover. Let’s say, for instance, that an ETF had a 5% turnover rate in February. By multiplying that number by 12, an investor might use it to determine yearly turnover for the next year. The yearly holdings turnover rate determined by this approach is 60%.

Actively Managed Investments

Growth funds rely on stock selection and trading tactics from skilled professional managers who aim to exceed the index used as the portfolio’s benchmark. Large equity holdings are more of a strategy to achieve successful shareholder outcomes than a commitment to good corporate governance. Managers who routinely outperform the indexes maintain their positions and draw substantial capital inflows.

Despite the ongoing debate between passive and active management, big-volume techniques can have some measure of success. Consider the American Century Small Cap Growth fund (ANOIX), a four-star Morningstar fund that consistently beat the S&P 500 Index over the past 15 years (through 2021) and has a furious 141% turnover rate.

Passively Managed Investments

Buy-and-hold investing is used by index funds like the Fidelity 500 Index Fund (FXAIX). According to this method, the fund holds equity positions so long as such securities are still part of the benchmark. Because of the funds’ flawless, positive correlation to the index, the portfolio turnover rate is only 4%. Trading is confined to buying shares from inflows and sporadically selling assets that have been dropped from the index. In the past, indexes have consistently outperformed managed funds by more than 60%.

It’s also critical to remember that a high turnover rate seldom indicates a fund’s performance or quality. After costs, the Fidelity Spartan 500 Index Fund lagged the S&P 500 by 2.57% in 2020.

Inventory turnover as a percentage of annual revenue

Businesses employ a variety of annual turnover measures to gauge how effectively their operations are performing on an annual basis. Inventory turnover is a metric used to gauge how quickly a firm sells its stock and to compare it to industry norms. Poor sales and perhaps surplus inventory, commonly known as overstocking, are indicators of low turnover. It can be a sign that the products sold have flaws or that there has been insufficient promotion. A high ratio implies either strong sales or insufficient inventories. The former is preferable, while the latter can result in decreased business. For example, a low inventory turnover rate might be advantageous when prices are projected to rise (and inventory is positioned to meet the rapidly increasing demand) or when shortages are anticipated.

One important indicator of a company’s performance is how quickly it can sell its goods. Faster inventory turnover is typically more successful for retailers. The longer an item is stored, the more expensive it will be to keep it, and the less likely customers will be to return to the store for more merchandise.


  • The number of times an asset, security, or payment changes hands over a year is used to calculate a turnover rate.
  • Businesses evaluate their productivity and efficiency using yearly turnover rates, while investors and investment managers utilize turnover rates to comprehend the activity of a portfolio.
  • Annualized turnover is frequently an estimate for the future based on the turnover of investments over one month (or another shorter period).
  • The performance or quality of a fund cannot be accurately predicted by its turnover rate alone.

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