The revenue of a company reports its net sales, or the
amount reflected in the total sale of goods. Learn how to categorize income and
calculate gross and net revenue for businesses.
Revenue vs. Income
Revenue and income are both factors on a company's balance
sheet and can help determine its financial health, but they represent different
values. The amount of money a company makes in sales is referred to as its
gross revenue. This figure excludes deductions and is higher than the company's
gross profit.
Gross income is similar to revenue in that it is the total
amount of money that enters a business over a specific time period. Gross
income at non-profits may also include fundraising donations and membership
fees. In a broader sense, income is revenue less the cost of doing business,
which includes operating expenses, the cost of goods and supplies, income tax,
paid labor, and real estate. Net income and net profit are nearly synonymous in
this context.
How to Calculate Revenue
It is simple to calculate your sales revenue. Your gross
revenue is the sum of all of your sales. The revenue formula can be written as
follows:
Gross revenue = (Item 1 quantity sold x Item 1 price) +
(Item 2 quantity sold x Item 2 price) + (Item 3 quantity sold + Item 3 price)
and so on.
Net revenue, then, takes into account other factors:
Net revenue = gross revenue “ discounts “ allowances “
returns.
Revenue Definition
Revenue is the total amount of money earned by a company
from product sales. In other words, it is the earnings before interest and
taxes of the company (EBIT). It is the earnings before interest, taxes,
depreciation, and amortization (EBITDA).
On the top line of all relevant financial statements,
companies frequently represent their total sales (or total revenue). This is
why revenue growth is sometimes referred to as "top-line growth."
This is in contrast to the company's earnings statement, which can be found at
the bottom of the same documents and represents "bottom-line growth."
2 Types of Revenue
A business owner may divide revenue into several units
depending on the type of business. There are two types of revenue: operating
revenue and nonoperating revenue.
1. Operating revenue: Operating revenue is the total income
from core business sales. This revenue could be generated by selling products,
goods, or services. For example, a clothing store might compare shorts revenue
to T-shirt revenue to button-down revenue. These values, when added together,
represent gross revenue and provide the company with quick metrics for
understanding where revenue growth is most pronounced and how cash flow works.
2. Nonoperating revenue: Nonoperating revenue includes
revenue from secondary sources. Asset sales, investment income, and interest
income are examples of revenue streams. Nonrecurring income is typically
nonrecurring.
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