Definitions: Share turnover is a measure of liquidity, which signifies the relative ease with which an investor can easily convert a share into cash. It can help understand how easily a shareholder can find a buyer or seller for that asset in the open market. Share turnover is calculated by dividing the total number of shares traded over a particular period by the number of shares outstanding during that period. A high share turnover indicates that it is easier for investors to buy or sell the shares of that company in the open market.
Descriptions: Share turnover helps you decide whether to purchase/sell the shares of a particular company over time. In simple terms, it compares the average number of shares of a company with the total number of shares that can be traded over a particular period. To calculate a company’s share turnover ratio, one requires two values, i.e. the total number of shares of the company traded over a period and its outstanding shares during that period. The first one can be treated as the trading volume that were bought and sold over a period. The second value is actually the total number of shares held by all the shareholders. These shares can be issued to investors or traders for purchase.
Share Turnover (Ratio) = Total Number of Shares Traded/Total Number of Shares Outstanding
Share turnover ratio indicates a stock’s liquidity i.e. how easily can it be converted into cash or how easy it is to sell shares. The higher the chances of converting shares into cash, the higher will be the chances of the shares getting sold in the market. Share turnover ratio can help one determine how easily an investor can invest in a company. However, it is not necessary that the ratio will provide you the exact picture of the performance of a stock. If a smaller number of investors are interested in investing in a stock, this will result in a low turnover. But if there are more traders or investors showing interest in a company’s stock/shares, it will give a higher turnover ratio.
