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What Is Share Turnover?
Mary McMahon
Mary McMahon
Share turnover is an expression of stock liquidity calculated by determining how many times shares turn over during a given trading period, commonly a year. When this measure is high, it indicates that trading is robust and stocks are highly liquid. It is easy to find buyers and sellers, although the pricing may be highly variable. A low share turnover reflects illiquidity, where shareholders have difficulty buying and selling stocks and could run into trouble if they need to sell off their stock.
It is possible to calculate share turnover by looking at the number of shares traded in a period and comparing that to the number of shares that the company has outstanding during the same period. Numbers of outstanding shares can change over time. Companies can buy up or recall shares to reduce the number on the market. They can also release more shares or engage in stock splits to increase the number of shares in circulation.
Information about the number of shares outstanding can be found in annual reports and other declarations made by a company in regards to its stock. A change in shares in circulation can also be a topic of interest for the financial media and may be the subject of reports. It is important to use the right number when calculating share turnover. If people use outdated data, they may end up with an inaccurate reflection of liquidity.
High share turnovers are a good sign. If a company has 100,000 outstanding shares over the course of a year and only 1,000 trades occur, this is a low share turnover ratio, in contrast with 1,000,000 trades, indicating a robust interest in the company's stocks. The higher the turnover, the greater the liquidity. Low turnover is a common trait of privately held corporations, where people have difficulty selling stock because sales are restricted.
Discussions of share turnover can often be found in overviews of companies and their activities in financial publications. These publications evaluate potential stock buys and rate them for the benefit of investors who want more information when they make stock purchase and sales decisions. For an investor who does not want to take long positions, high liquidity is crucial because it will allow the investor to sell stocks rapidly when necessary, though it may sometimes be necessary to take a loss on the sale. These publications usually provide sources for their information, for the benefit of investors who want independent verification.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
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![A low share turnover could mean shareholders are having difficulty buying and selling stocks.]()
By: ZoeA low share turnover could mean shareholders are having difficulty buying and selling stocks. -
![Information about the number of shares outstanding can be found in annual reports.]()
By: thinglassInformation about the number of shares outstanding can be found in annual reports.
Discussion Comments
@Mammmood - I think that while so called share turnover velocity is not bad by definition, you have to pay attention to who is doing the buying and selling.
For example, I worked for a large corporation that had been losing money for awhile. We all wondered how long it would last before we would finally hit the wall.
Finally one day we found out that the CEO unloaded a lot of his personal shares of ownership in the company. Now this kind of turnover this was clearly not a good thing, however the CEO tried to assure us that he was simply trying to diversify his portfolio.
However, two months later the company got bought out and the CEO made a hasty departure, leaving the rest of us in a state of utter shock.
So pay attention to who is doing the buying and selling, not just the volume of trades.
@SkyWhisperer - I wish I had known about this definition of stock market turnover when I was buying stocks individually. I think that this would be a good metric for determining institutional interest in a stock.
High interest means that the stock or company is poised to do well, and perhaps I should put some money on it. Unfortunately the only thing that I ever bothered looking at was charts; I’ve since learned that charts are meaningless in determining what a stock’s performance will be in the future.
Now and then I’d follow message boards on various stocks, and noticed that some people would talk about high volume on a certain stock. I never understood if that was good or bad, but after reading this article it’s starting to click.
@MrMoody - I think that share turnover implies both buy and sell orders happening at the same time.
For you to sell your shares, someone has to be willing to buy them. Therefore I don’t think it would be likely that everyone would be willing to sell with no one willing to buy.
In such a case, the sell orders could not be executed, as far as I understand it. Thus, this simply would result in a low stock market turnover.
So I stick with the article’s assertions. High turnover means that there is a lot of buying and selling. Low turnover means that it’s difficult to buy or sell, which would not be a good situation.
While it’s a good article, I guess I don’t always think that high share turnover is a good thing, like it says. What if a lot of those stock shares being turned over are sell orders?
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