Introduction
Today we will be discussing a financial term that covers a multitude of meanings: revenue. While the definition is very straightforward, the overall ground it covers when it comes to business and investment is both vast and varied. Let’s start with our definition first of all:
Revenue (n)
- the money a company brings in during a specific period, including any discounts and deductions for merchandise or services that are returned or refunded.
- commonly referred to as the “top line” or “gross income” figure on a balance sheet. Costs and expenses are deducted from this number to determine an organization’s net income
Basic calculation of revenue requires the simplest of mathematical skills: all you have to do is multiply prices of products and services times the number of units sold. There is a difference in revenue calculation depending on whether or not credit has been extended to the customer, but the totals should produce the same total regardless of the accounting method, this of course only scratches the surface of a topic commonly marked on accounts as “REVs.”
Revenue is typically divided into various categories dependent upon which internal divisions generate that revenue.
For example, a motorsports and customization shop might have a financing office on site, which would have its revenue calculated separately from the revenue generated by repairs and customizations that are paid cash on the barrel.
Additionally, most companies divide revenue streams by source between operating and non-operating revenue. Operating revenue is money brought in by the primary sales and services provided by the company, or money they make doing what they got into business to do. Non-operating revenue, on the other hand, refers to any other or secondary sources of income not related to a primary business function. However, since these are usually one-time or non-recurring revenue streams, they are often calculated as gains or windfalls.
Ultimately though, revenue matters to your business and potential investors because it is one of the primary determining factors of a venture’s overall financial health. If a group is looking at a company for potential investment, they are going to compare revenue to net income to get a rough idea of how that company manages and spends the money that comes in and goes out. At the end of the day though, revenue is the lifeblood of any business venture and a necessity if said venture wants to continue operating. It may seem like a simple enough concept at first glance, but the good stewardship and ability to maintain continuous sources of revenue is a complex and never ending concern for every company regardless of their business sector or industry.
