What is Investment Turnover?
Investment turnover is a ratio that measures how efficiently a company uses its debt and equity capital to generate sales revenue. It shows how many times the company can turn over its investment into sales. A higher investment turnover ratio means that the company is more effective in using its resources to generate income.
How to Calculate Investment Turnover in Excel?
The formula for investment turnover is:
Where:
- Sales revenue is the amount of money that the company earns from selling its goods or services.
- Shareholders’ equity is the amount of money that the owners of the company have invested in the business. It consists of common stock and retained earnings.
- Debt outstanding is the amount of money that the company owes to its creditors. It includes both long-term and short-term debt.
To calculate investment turnover in Excel, you need to enter the values of sales revenue, shareholders’ equity, and debt outstanding in separate cells. Then, in another cell, you can use the formula above to get the investment turnover ratio. For example, if sales revenue is in cell A1, shareholders’ equity is in cell B1, and debt outstanding is in cell C1, then you can enter the following formula in cell D1:
=A1/(B1+C1)
This will give you the investment turnover ratio in cell D1.
Example of Investment Turnover in Excel
Let’s say you want to compare the investment turnover ratios of two companies, Company A and Company B. You have the following information about their sales revenue, shareholders’ equity, and debt outstanding:
| Company | Sales Revenue | Shareholders’ Equity | Debt Outstanding |
|---|---|---|---|
| A | 2,500 | 500 | 600 |
| B | 3,000 | 800 | 400 |
You can enter these values in an Excel worksheet, as shown below:
Then, you can use the formula above to calculate the investment turnover ratios for both companies, as shown below:
As you can see, Company A has a higher investment turnover ratio than Company B (2.27 vs. 2.00). This means that Company A is more efficient in using its debt and equity capital to generate sales revenue than Company B.
Other Approaches to Calculate Investment Turnover in Excel
There are other ways to calculate investment turnover in Excel, depending on the data you have and the level of detail you want. Here are some examples:
- If you have the total assets and the current liabilities of the company, you can use the following formula to calculate investment turnover:
This formula assumes that the difference between total assets and current liabilities is equal to the sum of shareholders’ equity and long-term debt.
- If you have the net income and the return on investment (ROI) of the company, you can use the following formula to calculate investment turnover:
This formula assumes that the net income divided by the ROI is equal to the total investment of the company.
- If you have the fixed assets and the fixed asset turnover of the company, you can use the following formula to calculate investment turnover:
This formula assumes that the fixed assets divided by the fixed asset turnover is equal to the total investment of the company.
