Loading the player...

What is 'Revenue'

Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income.

Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.

Revenue is also known as sales on the income statement.

BREAKING DOWN 'Revenue'

Revenue is the amount of money that is brought into a company by its business activities. Revenue is also known as sales, as in the price-to-sales ratio, an alternative to the price-to-earnings ratio that uses revenue in the denominator.

There are different ways of calculating revenue, depending on the accounting method a business employs. Accrual accounting will include sales made on credit as revenue, as long as the goods or services have been delivered to the customer. It is therefore necessary to check the cash flow statement to assess how efficiently a company collects the money it is owed. Cash accounting, on the other hand, will only count sales as revenue if the payment has been received. When cash is paid to a company, this is known as a "receipt" to distinguish it from revenue. It is possible to have receipts without revenue - for example, if the customer paid in advance for a service that has not been rendered or goods that have not been delivered, this activity leads to a receipt, but not revenue.

Revenue is known as the top line because it is displayed first on a company's income statement. Expenses are then deducted from revenue in order to obtain net income or profit, also referred to as the bottom line. The profit of a company is calculated simply as revenues minus expenses. In order to increase profit, and hence, earnings per share for its shareholders, a company can increase its revenues and/or reduce expenses. Investors will often consider a company's revenue and net income separately to determine the health of a business. It is possible for net income to grow while revenue remains stagnant, as a result of cost-cutting; such a situation does not bode well for a company's long-term growth. When public companies report their quarterly earnings, the two figures that receive the most attention are typically revenue and earnings per share ("earnings" being equivalent to net income). Subsequent price movement in stocks generally correlates to whether a company beat or missed analysts' revenue and earnings per share expectations.

A company's revenue may be subdivided according to the divisions that generate it. For example, a recreational vehicles department might have a financing division, which could be a separate source of revenue. Revenue can also be divided into operating revenue or sales from a company's core business, and non-operating revenue which is derived from other secondary sources. As these non-operating revenue sources are often not predictable or recurring, they can be referred to as one-time events or gains. For example, proceeds from the sale of an asset, a windfall from investments, or money awarded through litigation would be considered non-operating revenue.

In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and resource rights, as well as any sales that are made.

For non-profits, revenue is often referred to as gross receipts. Its components include donations from individuals, foundations and companies; grants from government entities; investments; fundraising activities; and membership fees.

In terms of real estate investments, revenue refers to the income generated by a property, such as rent, parking fees, on-site laundry costs, etc. When the operating expenses incurred in running the property is subtracted from property income, the resulting value is net operating income.

RELATED TERMS
  1. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  2. Top Line

    A reference to the gross sales or revenues of a company, or an ...
  3. Income Statement

    A financial statement that measures a company's financial performance ...
  4. Times Revenue Method

    The times revenue method is a valuation method used to determine ...
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  6. Non-Operating Expense

    An expense incurred by activities not relating to the core operations ...
Related Articles
  1. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
  2. Investing

    Gross, Operating and Net Profit Margins

    A company’s income statement includes the company’s gross, operating and net profits.
  3. Personal Finance

    Revenue Analyst: Career Path & Qualifications

    Learn more about the duties of a revenue analyst and the qualifications needed for the position, along with the career path for these professionals.
  4. Investing

    S&P 500 Index: A Revenue Case Study

    Discover the breakdown of aggregate total revenue of S&P 500 companies, including how much revenue is earned by country, industry and geographic location.
  5. Trading

    Stock Analysis Basics: How To Forecast Revenue and Growth

    Forecasted revenue and growth projections are important components of security analysis, leading to a stock’s future worth.
  6. Investing

    Creative Accounting: When It's Too Good to Be True

    Accounting has matured, but there are still plenty of ways companies disguise financial results.
  7. Investing

    What Is a Cash Flow Statement?

    The Cash Flow Statement measures whether a company generates enough cash to meet its operating expenses.
RELATED FAQS
  1. Is operating profit the same as net income?

    Understand the difference between operating profit and net income, including how each type relates to the other and how both ... Read Answer >>
  2. What is the difference between earnings and revenue?

    Understand how a company makes revenue and how it makes earnings. Learn the difference between revenue and earnings and how ... Read Answer >>
  3. What is the difference between revenue and profit?

    Revenue can most easily be thought of as the top line of an income statement. Profit is the bottom line and the amount of ... Read Answer >>
  4. How does revenue sharing work in practice?

    Find out how revenue sharing works as profits are distributed among associated business partners. Learn how revenue sharing ... Read Answer >>
  5. Is net income the same as profit?

    Understand the difference between profit and net income, including why corporate accountants calculate profit at different ... Read Answer >>
  6. What does operating profit margin tell a business owner?

    Learn about the operating profit margin, how it is calculated and what it says to both business owners and investors about ... Read Answer >>
Hot Definitions
  1. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  2. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  3. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  4. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
  5. Capital Expenditure (CAPEX)

    Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial ...
  6. Discounted Cash Flow (DCF)

    Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity.
Trading Center