Revenue is the money income a company generates from sales of products and services, as well as from other activities such as investing. It is a key measure of the success of a business and one of the three major financial statements that provide insight into the financial performance of a business.
When a business makes a sale, it records its revenue. The total revenue number is calculated at the end of the period such as a month, quarter, or year. It measures the sales that have been made within that specific period and is the top line of a profit and loss statement.
Revenue is a really important measure, as it provides insight into a business's ability to generate income and sustain operations. The higher the revenue of the company, the better its profitability, whereas a low revenue could imply there are issues in the company’s products and services.
In general, there are two different types of revenue - operating and non-operating.
Operating revenue is generated from the goods or services a company sells in the course of its day-to-day business operations. This includes any sale of products, such as goods or services, as well as any related shipping fees.
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Non-operating revenue is income generated from activities not related to a company’s main business. Examples of these activities include income from a joint venture, or from selling an asset such as a property.
When considering revenue, the primary concern is how the company is able to generate it. Companies may choose different strategies to boost their revenue, such as offering promotions and discounts, adding new product lines, or focusing on sales of higher-priced items.
One of the traditional and most common ways to track and measure revenue is using the gross income calculation. This involves including all sales figures received, such as sale price, expenses, and taxes. This calculation can be used to measure the performance of the company over a specific period.
Another way to calculate revenue is through the net income calculation. This method eliminates any deductions for costs and expenses, and does not account for taxes. This calculation is considered a better indicator of a company's bottom line, as it provides more accurate data on the profitability of a business.
Another important factor when analysing revenue is trying to determine the sources of the income. Different sources have different implications and understanding this can help businesses make better decisions. A company may have multiple sources of revenue, such as products, services, and investments, and understanding the trends of each source can provide valuable insight into the success of the company.