Sorry, this turnover isn’t apple turnover.  Turnover in this case measures the amount of dollars of sales that result from the amount of the average operating assets.  This is a useful measure to observe as it shows how efficiently assets are being used to generate sales dollars.  Increasing the turnover ratio is what many firms will attempt to do to maximize profits, and investors will look for businesses with higher turnover ratios.

The turnover ratio is calculated as follows:

Turnover = Sales / Average operatng assets

Average operating assets is the average of the assets used in an operation over a period.  Once the period begins the value of the operating assets is then called beginning assets.  Through the period assets may be added, or subtracted.  For example, if you make donuts and you buy a new creamer so that you can get more cream into one donut, the price of the creamer is added to the value of your operating assets.  On the flip side if you sell a creamer because you have too many and the proceeds from that sale do not go back into the operation, then the value of the creamer is subtracted from the value of your operating assets.  At the end of the period the operating assets are called ending assets.

The calculation for finding the average operating assets is as follows:

Average operating assets = (Beginning assets + Ending assets)/2

Knowing the value of average operating assets is valuble for computing such things as turnover and ROI.

Operating income is earnings before interest and taxes.  This is simply what your investment or business brings in, the revenue, minus the costs of the operation, the operating expenses.  This, however, is not income, because you will not realize the amount that is operating income.

The equation for finding operating income is:

Operating Income = Revenue - Operating Expenses

Return on Investment (ROI) is a valuable ratio to look at when comparing two different investment’s returns.

Here is an example:

If you invested in two seperate business ventures, one produces footballs and the other produces basketballs, and the football business had a return of $100,000 and the basketball business had a return of $200,000, which one would you say is better?  Your answer should be, “I don’t know yet, what is the ROI for each business, how much was invested in each venture?”  If you knew that $500,000 was invested in the football business and $2,000,000 was invested in the basketball business then you would be able to give your answer, you would be able to compute the ROI.

The equation for computing return on investment (ROI) is:

ROI = Operating income/Average operating assets

In our example of footballs and basketballs the ROI for the football business is .2, or 20%, (operating income of $100,000/average operating assets of $500,00) and the ROI for the basketball business is .1, or 10%, operating income of $200,000/average operating assets of $2,000,000).  Obviously the football production business is better than basketballs, its ROI is 20% compared to 10%; double!  Think if you used that $2,000,000 that you invested in the basketball venture to invest in more football production ventures at $500,000 per venture with the 20% ROI on footballs you would have had a total return for the period of $500,000 instead of $300,000 an ROI of 25% (operating income of $500,000/average operating assets of $2,500,000) instead of your original ROI of 12% (operating income of $300,000/average operating assets of $2,500,000) when you were investing in basketballs and footballs.  Good thing you understand ROI so you know to move your money out of basketballs and into footballs!

ROI does not always come out of cash, even though in our example it did, an investment can of course include other assets such as securities, inventory, land etc.

Operating income is explained in detail in this article here and average operating assets are explained in detail in this article here.

It should be noted that ROI can also be calculated by multiplying margin against turnover.  However, because margin and turnover both include sales in their calculation the equation can be simpliflied to operating income/average operating assets.

The price a bond is inversely related to the interest rates of newly issued bonds being offered in the market.  As the interest rate goes up for newly issued bonds then the price of your bond with the lower interest rate is going to fall.  It is common sense, an investor is going to want the bond with the higher interest rate so they will pay less for your outstanding bond with the lower interest rate.

The equation to calculate what the price of the bond in the secondary market will be is:

PRICE OF BOND = 1/CURRENT INTEREST RATE