Revenue is the actual amount of money earned by a firm from the sale of goods and services. It is usually used to assess the “health” of a firm.
What is Revenue?
As it has already been said, revenue refers to a company’s health. Actually, it is one of the main measures that show if the company is doing well. A high revenue, in general, signifies a developing firm. Weak revenue indicates that the business is not being kept at the proper level and is not growing. Typically, reviewing a company’s financial statements (or earning reports) may show you how well it is working. These reports include revenue as well as other indicators like costs and profit.
Gross revenue is computed by putting up all of the money collected from the company’s sales throughout the time period covered by the financial results report.
Net revenue is a related statistic that is generated by deducting from gross income expenses that decrease revenue (total selling expenses).
Net revenue = Gross revenue – Total selling expenses
Revenue vs. Profit
The main difference between these indexes is that revenue doesn’t count the costs of the business like profit does. Profit is obtained by deducting expenses from revenue.
If the firm receives more money than it spends, it is profitable. When it receives less money than it spends, it is considered to be detrimental.
The company’s revenue is favorable in practically every report. If you didn’t make any sales, your revenue would amount to zero. Any costs made in this period would result in losses.
In exceptional instances, businesses show negative revenue. A negative result might indicate a shift in accounting standards. A change in accounting affects how a corporation values its money or assets. Generally, volume loss may not indicate an actual drop in income.
While profit is determined by income, it is also determined by costs. The company’s revenue may rise, however if its costs increase faster, its profit will fall.
How to calculate revenue?
The revenue is not difficult to calculate. Revenue is the total amount of money received by the firm, excluding sales tax, which doesn’t belong to the business. The sales tax is the responsibility of the city, county, state, or any other government that supervises the region where the firm is located.
Revenue = Sales?
Not all of the time. The company’s revenue might be similar to its sales for the quarter or the fiscal year. As a result, you may hear revenue coupled with sales as “sales revenue” rather frequently. However, there are also non-operational revenue sources that aren’t linked to sales.
Non-operating revenue is generated through sources other than sales. If a firm holds stock in another company, all dividends paid on those shares are considered as revenue. Dividends paid on government bonds will also be considered as revenue.
Revenue vs. Income
Income and revenue are closely connected but in fact income is influenced by the revenue indicator. When we consider their “pure” forms (net), the contrast between these terms is more clear.
1. Net revenue is the amount of revenue that remains after subtracting refunds and discounts.
2. Net profit is the amount of money left over after deducting all company expenses. They are, for example:
- the cost of producing the things sold;
- the cost of delivering services;
- other expenditures such as salaries, rent, and so on.
The key distinction between them is that net revenue doesn’t include costs. Furthermore, it simply focuses on situations in which the corporation earned less than it planned. Net profit varies from gross profit because it includes costs.
The net profit is frequently found in the financial statements. Revenue is nearly always reported in the front of the report, whereas net profit is almost always given near the bottom.