Is Revenue Profit Profit Takes

While both revenue and  are strong indicators of your business’s financial health and performance, they are not the same — and that difference stems primarily from how each relates to expenses.

Simply put, revenue is your business’ income before expenses, whereas profit is your business’ income after them. The term “expenses” covers any costs associated with operating a business.

Those can include employees’ salaries, rent for office space, insurancetravel, advertising, legal fees, or any other costs a business incurs when producing, selling, or promoting its product or service.

Profit takes revenue and deducts any of those expenses from the same period. Ideally, after subtracting all your expenses you still have income remaining — making your business profitable.

What is the revenue formula?

Calculating revenue is a relatively straightforward process. Use one of the following formulas:

For product-based businesses, multiply the number of units sold in a statement period by the average price.

For service-based businesses, multiply the number of customers or contracts in a statement period by the average service price.

 

Does revenue = cash flow?

If you’re generating revenue, you’re also generating cold hard cash — right? Not necessarily. Many new business owners make that assumption, and it can be costly.

Businesses should never conflate high revenue with positiv In fact, it’s possible for your revenue to be high, while your cash flow is negative.

Here’s an example: Suppose your business sells a $5,000 forklift to a construction company on May 1st. Technically, you have $5,000 in revenue — but the construction company has until May 31st to pay the invoice.

Meanwhile, the cost to deliver the forklift is $500 — so your business has $500 in cash outflow Wuhan Mobile Phone Number before it can collect the $5,000 in revenue on May 31st.

Sometimes the exchange of products and services with cash isn’t simultaneous, which is why it’s important to remember that high revenue means your products or services are selling well — not that your business is making liquid cash.

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Revenue on the Income Statement: Top vs. Bottom Line

The top and bottom lines of youare typically considered the two most critical figures on it.

The top line is your company’s gross revenue, which is the combination of your operating and non-operating revenue during a statement period.

Therefore, when a company has “top-line growth,” it generally means it’s seeing an uptick in sales or revenue. That said, gross revenue isn’t necessarily indicative of your ability to generate profit.

The bottom line is your company’s net income, which is your gross revenue minus any expenses, allowances, refunds, and discounts during the same statement period.

For the sake of example, let’s consider that forklift company from earlier. Let’s say the company sells 1,000 forklifts at $5,000 each.

  • That would make its gross revenue $5,000,000.
  • To help move the last of its inventory, the company decided to offer a $500 discount on the last 200 forklifts it sold — meaning it took a $100,000 hit on discounts.
  • 100 of the forklifts were returned for an 80% refund — so it saw $400,000 in returns.
  • The costs of goods sold (COGS) required to produce each forklift is $2,000 — so the business has to account for $2,000,000 worth of those expenses.
  • The sum of its operating expenses for the period — including employees’ salaries, rent for office space, marketing, employee travel, and legal fees — was $1,000,000.

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