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 If people use outdated data, they may end up with an inaccurate reflection of liquidity.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.
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.