For Business Managers

• Dividing sales by long-term debt and equity yields investment turnover for a business manager. The quotient answers questions about how much sales (in relative terms) the business is generating with money raised from investors and creditors. If the manager spends the money efficiently, a dollar of invested capital should go longer and allow for higher sales per dollar of investment compared to the competition or compared with previous years.
  
  

For Portfolio Managers

• Buying and selling investment securities results in brokerage fees and tax consequences that are paid out of portfolio returns. Investment turnover, in this context, serves as a proxy of such transaction costs. Achieving high returns with less trading is considered more efficient, from the investor's point of view. Funds are often ranked and compared using this investment turnover. A caveat exists, however, when comparing portfolio turnover across funds, as most funds have their own way of calculating this ratio.
  
  

Market Turnover

• Investment turnover also refers to market turnover as in real estate investment turnover. In this case, it is calculated as the total volume of transactions in dollars over a given period, usually per annum. The ratio indicates level of market activity and liquidity -- that is, how easy it is to convert an investment into cash.
  
  

Implications for Investors

• As an investor, you want to see higher investment turnover in a business and lower investment turnover for a mutual fund. Take caution, however, as often a portfolio manager will sell losing positions to reduce tax liability on profitable ones. As well, the transaction costs arising from a more aggressive trading strategy may be justified with higher net returns. High investment turnover in real estate markets can be a positive signal just as well as a negative one. Excessive market activity raises volatility and can affect prices in either direction.