Share Turnover

Share Turnover

Share Turnover

We do a lot of research when buying a stock, but it is the complete opposite when we want to sell them, a simple click on the sell button, and the stocks are liquidated or traded for the stocks. We make the selling process much easier by looking at a single metric, the selling price, to ensure profit is made. Let’s talk about one of the selling metrics one must consider when you are liquidating stocks as an investor; the share turnover. This interesting article will involve a simple mathematical formula to understand if it is easy to buy or sell stocks for the investor. Let’s get started, and we will ensure the basic concept is clearer as the article comes to an end.

Share turnover helps the stock investors to understand the ease of liquidating the stocks against the money. In simple words, it helps the stock investors to understand if it is an easy time to buy or sell stocks. If the share turnover is high, it is a good time to trade the stocks, and if the share turnover is low, it is possibly not a great time to trade the shares.
The concept is not anywhere being complicated; share turnover only helps in understanding and assessing the situation on a timely basis.

Share turnover is an important indicator for stock marketers, and it becomes extremely important for both the companies and the marketers to calculate them. For companies, it is important to understand the share turnover value to know the performance in general. If the companies are falling downhill with less performance, it is obvious that the share turnovers will show a lesser value. This will lead to stock volatility as marketers won’t be interested in buying such stocks, and selling them will become a hard choice. Besides, the stock volatility will also increase the low liquidity situation, which is not the best option for any company. To keep the cash and stock-flow in the market, companies would need to track the share turnover over each quarter.
Apart from companies, stock marketers also need to pay good attention to a company’s share turnover. As a stock marketer, good research of the company and the numbers associated with it is an important task. You will be investing a good lump sum amount in these stocks, and a blind investment is a nightmare. During this research, share turnover is an important metric as it will help you assess the situation of the company, similar to the floating stocks. If the share turnover is less, the stock marketers will face trouble liquidating the stocks in the near future depicting stock volatility.

Now that we know how important is share turnover, here is how to calculate it -
The share turnover is expressed in the form of a share turnover ratio or share turnover rate. To calculate the share turnover, we need to have more numbers.

  • A total number of shares of the company’s stock that were bought during the trading volume.
  • Share outstanding - Total number of shares that are still available for purchase for the investors.

Share Turnover Ratio = Shares bought during the trading volume / Share outstanding.
The Share Turnover ratio does not have a specific range for the stock market; it is an industry-specific metric and differs among all the industries. Statistically speaking, you cannot compare the share turnover of a company in the food industry with a shoe industry, as they are different in nature; the numbers of a particular company may differ from another.
Then, how do you compare the share turnover? The answer is simple; you can compare with either the history of the company or with the company from a similar industry and position. These are the best ways to compare the turnover of the company to understand which company to invest in.

A low share turnover implies difficulty in business, and this could cause serious damage and, in some cases, bring it down. If there is a problem, there is a solution for it, and here is how to efficiently improve the share turnover of the company.

  • Listing on the stock exchange is the best solution to get more investors and increase the funds. If the company lists stocks though the share turnover is less, it offers an investment opportunity to more investors.
  • The second step is difficult because here, you have to persuade the large stockholders to release some portion of the large holdings. If the large stockholders release a good amount of stocks, more stocks will be available for purchase in the open market, which will lead to an increase in the share turnover. It will be difficult for the companies to do so, but this is one of the best options.
  • Investors love to invest in preferred stocks, and this could lead to low share turnover as the choices are over. Difficult as the second step, companies can persuade the stock investors to choose to invest in common stocks over the preferred stocks. This way, there are more stocks available to be traded by the investors.
  • Register maximum number of shares with SEBI (Security Exchange Board of India) to ensure maximum shares are available for sale. Unregistered shares cannot be put on sale though they are released by the company.
  • Reduce the price of shares to make them more affordable by the investors. Techniques such as Stock Split can be performed to reduce the share prices.

Summary

Share turnover helps the stock investors to understand the ease of liquidating the stocks against the money. In simple words, it helps the stock investors to understand if it is an ease in time to buy or sell stocks. It has a major significance and acts as one of the indicators in the stock market.

  • What is a share turnover?
  • It helps the stock investors to understand if it is an ease in time to buy or sell stocks.

  • What is the formula for share turnover?
  • The formula for share turnover is, Share Turnover Ratio = Shares bought during the trading volume / Share outstanding.

  • Can you increase the share turnover?
  • Yes, there are a few ways that can sound helpful in increasing the share turnover. A few ways are persuading large shareholders to release some quantity, stock split, and registering a maximum number of shares with SEBI.