Revenue is the total amount of income that a company has incurred by selling its goods and services to customers. It’s the money that the company has incurred for a period through its ordinary course of business.
Revenue is also known as sales for a manufacturing or trading concern and gross receipts for a service industry.
You will find companies reporting “revenue from operation” in its income statement to be very precise.
For example, a software company will report money received from customers by providing software and information technology related services as “revenue from operations”. Income from investments or other income which is not related to its primary business will be reported as “other income”. Total of “revenue from operations” and “other income” will be considered as total income of the company for the period.
Profit is the net amount after taking out total expenses from revenue and other incomes.
Profit is referred to the company’s bottom line and revenue as top line. Instead of profit a company can have net loss.
We have different variations of profit reported in the income statement. Financial analysts give importance to these profits while analysing a company’s efficiency and profitability.
Gross profit is revenue minus cost of goods sold (COGS). Cost of goods sold is the total amount of direct costs attributable to the production of goods sold or services rendered.
Operating profit is gross profit minus all operating costs which includes variable and fixed expenses such as rent, salaries and utilities.
When investors, news anchors, analysts and other market participants refer to a company’s profit, it means they are referring to net profit, not company’s gross or operating income.
Net profit is the amount that is left over after recording all expenses related to the revenue for the period.
Both are shown on a company’s income statement. While revenue is referred to as the top line as it is shown at the top of the income statement, net profit is referred to as bottom line as it is at the bottom of the income statement.
Example:
| SI No. | Particulars | Amounts in INR |
| 1 | Revenue from operation | 12,00,000 |
| 2 | Other income | 10,000 |
| 3 | Total Revenue (1+2) | 12,10,000 |
| 4 | Cost of Goods sold | 6,10,000 |
| 5 | Gross Profit (3-4) | 6,00,000 |
| 6 | Salaries | 2,00,000 |
| 7 | Office Rent | 1,00,000 |
| 8 | Other expenses | 5,000 |
| 9 | Operating Profit (5-6-7-8) | 2,95,000 |
| 10 | Interest | 95,000 |
| 11 | Tax | 50,000 |
| 12 | Net profit (9-10-11) | 1,50,000 |
What is more important, Net Profit or revenue?
For everyone, both revenue and net profit are important. Net profit margin gives a more accurate picture about a company’s efficiency to retain a percentage of money out of company’s revenues. Growth in revenue and net profit are considered by many analysts before investing or to remain invested.
We have many profitability ratios and other financial ratios derived based on revenue and net profit to analyse the company better.
