How Important is Knowledge

I was quite proud of the fact that I good education – technical as well as management till one day I could understand meaning of the term called as “Turnover.”
During the time when I was setting up a small factory about forty years back, I once had a discussion with my erstwhile employer. I had said, “What is important is Profit and not the Turnover.” He told “Profit is important but the turnover is also important.”
I did not know that Profit was a unit but the Turnover was a ratio. In simple words Profit is Sales minus Costs, where as Turnover is Sales divided by the Capital Employed.
If a car manufacturer A converts his raw material into finished cars in one day. In a simple example let’s take that he received his raw material invoice on8th and he raised his finished goods,cars invoice on 9th.On the other hand another car manufacturer B with the same amount of capital employed converts his raw material into finished cars in three days. He received his raw material invoice on8th and he raised his cars invoice on11th.
Then the manufacturer A has three times the turnover than B.
We know that in life unless one knows the importance of something one cannot pursue that goal seriously. I didn’t know the importance of Turnover then, consequently from the time I got the raw material and by the time it got converted into finished goods was mostly flexible and without fail to my disadvantage. Therefore the deliveries of my products got extended due to either my mistakes or sometimes due to my customers’ ill planning. As the delivery commitment was not my strong point, I could never ask for compensation from the customers due to their delays.
I was not focused on Turnover and therefore my costs were higher. Often my competitors could sell their products at lower prices than mine because their deliveries were shorter.
Ultimately due to growing losses I had to shut down my factory.
I have been able to properly understand the importance of “Turnover” only now. I am sure that I will focus on this important concept now. It is an important lesson for me which I am sure will help me in my business.

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