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What is Revenue?

2017-03-03T07:44:45+00:00

The term 'Revenue' is included in the Accounting edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Revenue refers to the amount of money which firms generate in receivables within a certain time frame. It includes deductions for merchandise which is returned as well as any applicable discounts. This is also known as the gross income or sometimes the “top line” amount. Net income can be figured out by subtracting the costs from the revenue.

Analysts and accountants determine the amount of revenue simply by taking the price for which services and goods sell and multiplying this by the quantity of units or the actual amount which the firm sells. Sometimes revenue is referred to as “REVs.”

There are a number of other definitions and synonyms for revenues. Some call it sales in layman’s terms. Whatever name businesses and individuals refer to it by, revenue proves to be the total amount of cash which a company garners through its aggregate business activities. The price to sales ratio is one measurement in business that relies on revenues for the denominator. This contrasts with the competing measurement of price to earnings ratio, which utilizes the profits instead for its denominator.

Revenue can be figured up by several different means. It is really up to the method of accounting which companies and corporations choose to employ. With accrual accounting, sales which the firm makes using credit also count among the revenues so long as the customers have taken delivery of the services or goods. This is why investors and analysts must review the company’s cash flow statement in order to evaluate how effectively a firm actually collects on the money which its customers owe it.

The other primary form of determining a company’s revenues is through cash accounting. This form of accounting utilizes only sales for the revenues’ quotient once the money a customer owes has been collected by the firm in question. When a customer gives the money to a corporation or company, the firm recognizes it as a receipt instead of the general category of revenues. Companies can actually have receipts that do not include revenues. This is possible if a customer were to pay for a service in advance of receiving it or for purchased goods which they have not yet received.

Revenue can also be called “top line” since income statements display them first on the report. Analysts then take revenues and deduct the expenses so that they can come up with the “bottom line,” which is also called simply profit or alternatively net income.

Many times investors evaluate both a firm’s net income and revenues independently of one another so that they can ascertain how strong a business’ health really turns out to be. The reason for this is that net income can increase while revenues remain flat. Cost cutting can actually cause this phenomenon. This scenario is not a positive sign for the longer term growth potential for a firm.

Analysts and investors often further subdivide the revenues from a given company or corporation according to the groups which generate the money. Company accountants can also divide up the receipts of the firm into several categories of operating revenues, the core business of the firm’s sales, and non-operating revenues that come from secondary sources. Such non-operating variants are typically not recurring or can not be forecast successfully. This is why these are sometimes known as one-time gains or events. Examples of this could be money gained through lawsuits, investment windfalls, or receipts from selling an asset.

Where a government is concerned, revenue refers to the receipts they obtain as a result of fees, taxation, fines, securities sales, transfers, intergovernmental grants, resource rights and mineral rights, or any sales of government assets or state-owned and -run companies which they might make.

In the world of not for profit organizations, such revenues are commonly referred to by the phrase of “gross receipts.” Among the components that make up these receipts are donations from companies, foundations, and individuals; investment returns; grants out of governmental agencies and entities; membership dues and fees; and fundraising endeavors.

The term 'Revenue' is included in the Accounting edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.