Lesson Note on Turnover: Meaning, Factors and Profit-to-Turnover Ratios for SS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: Third Term
Week: 3
Age: 16 years
Duration: 45 minutes
Subject: Commerce
Curriculum Theme: Financial Management
Previous Lesson: Profit: Meaning, Types and Calculations.
Topic: Turnover
Subject Matter: Meaning of turnover (total sales revenue in a period), relationship of capital investment to turnover, factors that affect turnover, calculation of gross profit to turnover, calculation of net profit to turnover, variation in turnover in different types of business.

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define turnover as total sales revenue in a period.
• Explain the relationship between capital investment and turnover.
• List at least three factors that affect turnover.
• Calculate gross profit to turnover ratio from given data.
• Calculate net profit to turnover ratio from given data.
• Identify variations in turnover across different types of businesses.

Affective Domain:

• Appreciate the importance of turnover analysis in assessing business performance.
• Show interest in understanding how different factors influence business sales.

Psychomotor Domain:

• Solve practical problems involving the calculation of turnover ratios.
• Interpret simple business data to understand turnover trends.

Social Domain:

• Collaborate with peers in discussing factors affecting business turnover.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Essential Commerce for Senior Secondary Schools, by O.A. Longe.

Instructional Materials

The teacher will teach this lesson with the aid of:

• Sample business data (sales figures, profit figures).
• Calculators.
• Chalkboard or whiteboard.
• Marker or chalk.

Rationale for the Lesson

Understanding turnover helps pupils grasp how businesses generate revenue and how efficiently they operate. This knowledge is important for evaluating business performance and making informed decisions in real-world scenarios.

Prerequisite/Previous Knowledge

Pupils have a basic understanding of sales, revenue, profit, and general business operations from previous lessons.

Lesson Content/Board Summary

TURNOVER

Meaning of Turnover

Turnover refers to the total value of sales generated by a business over a specific period, usually a financial year or quarter. It represents the total revenue earned from selling goods or services before any expenses are deducted. It is also known as sales revenue.

Relationship of Capital Investment to Turnover

Capital investment can significantly influence turnover. A higher capital investment can allow a business to:

• Expand production capacity.
• Increase inventory levels.
• Invest in better marketing and distribution channels.
• Acquire advanced technology.

These actions can lead to increased sales volume and, consequently, higher turnover. However, efficient utilization of capital is essential for this relationship to be positive.

Factors Affecting Turnover

The following factors can influence a business’s turnover:

• Price of Goods/Services: The selling price directly impacts the total revenue generated.
• Volume of Sales: The quantity of goods or services sold is a primary driver of turnover.
• Marketing and Promotion: Effective marketing can increase demand and sales.
• Competition: The level of competition in the market can affect market share and sales volume.
• Economic Conditions: General economic health (e.g., inflation, recession) influences consumer spending power.
• Product Quality: High-quality products often attract more customers and lead to repeat purchases.
• Distribution Channels: The availability and accessibility of products to customers.
• Customer Service: Good service can enhance customer loyalty and sales.
• Credit Policy: Offering credit can boost sales, but also carries risks.

Calculation of Gross Profit to Turnover Ratio

This ratio indicates the percentage of sales revenue that remains after deducting the cost of goods sold. It measures the profitability of a business’s core operations.

Formula:

Gross Profit to Turnover Ratio = (Gross Profit / Turnover) * 100%

Where:

• Gross Profit = Sales Revenue – Cost of Goods Sold
• Turnover = Total Sales Revenue

Worked Example 1:

A business had sales revenue of ₦500,000 and a cost of goods sold of ₦300,000 for the year.

Calculate the Gross Profit to Turnover Ratio.

Solution:

Step 1: Calculate Gross Profit.

Gross Profit = Sales Revenue – Cost of Goods Sold

Gross Profit = ₦500,000 – ₦300,000 = ₦200,000

Step 2: Apply the formula for Gross Profit to Turnover Ratio.

Gross Profit to Turnover Ratio = (Gross Profit / Turnover) * 100%

Gross Profit to Turnover Ratio = (₦200,000 / ₦500,000) * 100%

Gross Profit to Turnover Ratio = 0.4 * 100% = 40%

Calculation of Net Profit to Turnover Ratio

This ratio shows the percentage of sales revenue that remains as net profit after all operating expenses, interest, and taxes have been deducted. It is a comprehensive measure of a business’s overall profitability.

Formula:

Net Profit to Turnover Ratio = (Net Profit / Turnover) * 100%

Where:

• Net Profit = Gross Profit – Operating Expenses – Interest – Taxes
• Turnover = Total Sales Revenue

Worked Example 2:

Using the data from Example 1, assume the business had operating expenses of ₦80,000, interest of ₦5,000, and taxes of ₦15,000.

Calculate the Net Profit to Turnover Ratio.

Solution:

Step 1: Calculate Net Profit.

Net Profit = Gross Profit – Operating Expenses – Interest – Taxes

Net Profit = ₦200,000 – ₦80,000 – ₦5,000 – ₦15,000 = ₦100,000

Step 2: Apply the formula for Net Profit to Turnover Ratio.

Net Profit to Turnover Ratio = (Net Profit / Turnover) * 100%

Net Profit to Turnover Ratio = (₦100,000 / ₦500,000) * 100%

Net Profit to Turnover Ratio = 0.2 * 100% = 20%

Variation in Turnover in Different Types of Business

Turnover figures can vary significantly depending on the nature and type of business.

• High Turnover Businesses: Businesses like supermarkets, fast-food restaurants, and convenience stores typically have high turnover due to selling high volumes of low-cost items. Their profit margins per item might be small, but the sheer volume of sales generates substantial total revenue.
• Low Turnover Businesses: Businesses dealing with high-value, low-volume items such as luxury car dealerships, real estate agencies, or specialized machinery manufacturers tend to have lower turnover. While the number of sales is low, the profit margin per sale is often very high.
• Service Businesses: Turnover for service businesses (e.g., consulting firms, law firms) is based on fees charged for services rendered, which can fluctuate based on client projects and hourly rates.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils, reviews the previous lesson briefly, and then introduces the topic of “Turnover” by asking pupils what they understand by ‘sales’ in a business.
Pupils’ Activity: Pupils respond to the teacher’s questions and listen attentively.
Learning Point: Pupils are prepared for the new lesson and connect it to prior knowledge.

Step 2: Explanation of Turnover

Time: 7 minutes
Teaching Skill: Explanation
Teacher’s Activity: The teacher defines turnover as the total sales revenue of a business over a period, providing simple examples.
Pupils’ Activity: Pupils listen, take notes, and ask questions for clarification.
Learning Point: Pupils understand the meaning of turnover.

Step 3: Capital Investment and Turnover

Time: 7 minutes
Teaching Skill: Discussion/Explanation
Teacher’s Activity: The teacher explains how increased capital investment can lead to higher production, better marketing, and ultimately higher turnover, discussing efficient capital use.
Pupils’ Activity: Pupils participate in the discussion, offering their thoughts on the relationship.
Learning Point: Pupils understand the link between capital investment and turnover.

Step 4: Factors Affecting Turnover

Time: 7 minutes
Teaching Skill: Listing/Brainstorming
Teacher’s Activity: The teacher guides pupils to list and explain various factors that can influence a business’s turnover, such as price, marketing, and competition.
Pupils’ Activity: Pupils contribute ideas and take notes on the factors discussed.
Learning Point: Pupils identify and understand key factors influencing turnover.

Step 5: Gross Profit to Turnover Ratio

Time: 7 minutes
Teaching Skill: Demonstration
Teacher’s Activity: The teacher introduces the formula for calculating the Gross Profit to Turnover Ratio and works through a practical example on the board, explaining each step clearly.
Pupils’ Activity: Pupils copy the formula and the worked example into their notebooks, asking questions as needed.
Learning Point: Pupils learn how to calculate and interpret the Gross Profit to Turnover Ratio.

Step 6: Net Profit to Turnover Ratio

Time: 7 minutes
Teaching Skill: Demonstration
Teacher’s Activity: The teacher introduces the formula for calculating the Net Profit to Turnover Ratio and works through another practical example on the board, relating it to the previous example where possible.
Pupils’ Activity: Pupils copy the formula and the worked example, ensuring they understand the difference from the gross profit ratio.
Learning Point: Pupils learn how to calculate and interpret the Net Profit to Turnover Ratio.

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define turnover in your own words.
2. Mention two ways capital investment can affect turnover.
3. List three factors that can influence a business’s turnover.
4. A company has sales of ₦800,000 and a gross profit of ₦320,000. Calculate its Gross Profit to Turnover Ratio.
5. If the same company has a net profit of ₦160,000, what is its Net Profit to Turnover Ratio?

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 2 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher briefly summarizes the key points of the lesson and assigns homework, which may include finding real-life examples of businesses with high and low turnover.
Pupils’ Activity: Pupils listen to the summary and note down the homework assignment.
Learning Point: Pupils reinforce their understanding and are given tasks for further practice.

Lesson Keywords

• Turnover – Total sales revenue of a business over a specific period.
• Sales Revenue – Income generated from selling goods or services.
• Capital Investment – Money invested into a business to acquire assets or expand operations.
• Gross Profit – Revenue minus the cost of goods sold.
• Net Profit – Profit remaining after all expenses, including operating costs, interest, and taxes, have been deducted from revenue.
• Ratio – A comparison of two numbers, often expressed as a percentage.

Differentiation

For pupils who grasp the concepts quickly, the teacher can provide more complex scenarios for ratio calculations or ask them to research real-world company turnover figures. For pupils who are struggling, the teacher can offer additional simplified examples and one-on-one guidance during the calculation steps.

Note for teachers using this lesson plan

Ensure that pupils have a clear understanding of basic accounting terms like sales, cost of goods sold, gross profit, and net profit before delving into turnover ratios. Encourage pupils to use calculators for the numerical examples to focus on understanding the concept and formulas rather than arithmetic. Provide diverse business examples to illustrate variations in turnover.