Revenue vs. Profit: An Overview

Revenue is the total amount of income generated by the sale of goods or services related to a company's primary operations. Profit is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs. Profit is typically referred to as 澳洲幸运5官方开奖结果体彩网:net profit or the 澳洲幸运5官方开奖结果体彩网:bottom line.

What Is Revenue?

Revenue is often referred to as the top line because it appears at the top of the 澳洲幸运5官方开奖结果体彩网:income statement. It's the income that a company generates before any expenses are subtracted. Income from sales and operations isn't considered revenue if the company also has income from investments or a 澳洲幸运5官方开奖结果体彩网:subsidiary company. Additional income streams and various types of expenses are accounted forꦬ separately.

ꦏCompanies often report gross revenue 𝔍and/or net revenue on their financial statements.

• Gross revenue is the total sales a company makes before any returns or pricing discounts. The company then reports net sales or net revenue when these residual sale items are accounted for.
• Net revenue doesn't include company expenses. It only reports the aggregated revenue factoring in certain aspects of revenue that may reduce the amount.

What Impacts Revenue?

Many factors can impact the revenue a company brings in as part of its operations, inc💞luding the following:

• Demand: Revenue can increase when a company's products or services are in high demand and can drop as demand falls.
• Pricing: Companies must be sensitive to price changes, which are crucial in determining a company's revenue. Increasing prices can lead to a decrease in demand and a drop in revenue.
• Competition: A company may earn less revenue because of external competition. A company may have to take certain steps like lowering its prices or risk missing out on certain customers if it faces intense competition.

What Is Profit?

Profit is referred to as 澳洲幸运5官方开奖结果体彩网:net income on the income statement. Most people know it as the bottom line. Variations of profit on the income statement are used to analyze a company's financial performance. The term may emerge in the context of 澳洲幸运5官方开奖结果体彩网:gross profit and operating profit.

• Gross profit is revenue minus the 澳洲幸运5官方开奖结果体彩网:cost of goods sold (COGS), which are the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials that are used in creating a company's products along with the direct labor costs used to produce them.
• 澳洲幸运5官方开奖结果体彩网:Operating profit is gross profit minus all other fixed and variable expenses associated with operating the business such as rent, utilities, and payroll.

The revenue a company earns is also impacted by general economic conditions. 澳洲幸运5官方开奖结果体彩网:Consumer spending may decrease during a 澳洲幸运5官方开奖结果体彩网:recession. This can als✱o be the case for products that are seasonal because a company may simply be at the whim of cyclical demand such as retails during the holidays.

What Impacts Profit?

Profit is a component of revenue so everything that impacts revenue also impacts profit. But, profit is impacted by more factors because there are more items invo♑lved in the calculation. Companies may have escalating costs for COGS or other direct costs associated with producing or purchasing the products they sell. They may increase their profit 🌺without impacting revenue if they can manufacture their goods more efficiently.

Companies are also usually mindful of 澳洲幸运5官方开奖结果体彩网:operating expenses (OpEx). These are the expenses that a company incurs to run its business. It can increase its profits without havi🐠ng tꦍo sell any additional goods if the company can reduce its operating expenses.

Companies can also be mindful of net profit by considering taxes and interest. Companies may have to raise capital by offering equity to avoid interest expenses but this can detract from retained earnings in the long run if investors demand 澳洲幸运5官方开奖结果体彩网:dividends.

Companies must do considerable planning and they must implement legal avoidance strategies to avoid taxes. A company would reduce its expenses in both areas and ultimately increase profit if it were mindful of both, again without having to ear🍎n any additional revenue.

Key Differences

Most people don't refer to gross or operating profit when they speak about a company's profit. This is usually net income—what's left after paying expenses or the net profit. A company can generate revenue and still have a net loss at the same time.

One of the primary differences between revenue and profit is where each number is reported on a company's income statement. Revenue is reported near the top because it's less inclusive. Profit is further down because it incorporates expenses. This leads to another key difference: Revenue incorporates money taken in while profit reflects a company's inflows and outflows.

Companies𓆉 use each metric differently to make decisions:༒

• Revenue projections are used to set manufacturing expectations because forecasted quantities of goods sold drive what inventory to create.
• Profit helps companies decide how to best allocate future capital, investing heavily when strong profits are to be expected or building its reserves when they're weaker.

Each category is influenced by accounting rules although revenue is often a purer number that's less susceptible to variation due to bookkeeping. There may be reliance on management estimates and more general ledger account balances when accounting for profit. Profit can be more impacted by accounting rules. Revenue is generally more influenced by market performance.

Calculating Revenue to Profit

Companies begin their income statements by reporting revenue. They end them by reporting net profit. Several steps are involved in getting from one category to the other. The formula for calculating net income and each step in the process are:

Net Profit = (Net) Revenue - COGS - OpEx - Interest Expenses - Taxes

1. Calculate net revenue. This entails gathering all revenue sources and factoring in all appropriate items such as returns that directly reduce gross revenue.
2. Calculate the COGS. COGS is the cost of producing or purchasing the products that are sold during the period. It includes the cost of 澳洲幸运5官方开奖结果体彩网:raw materials, labor, and other direct costs. These expenses are only attributable to creating inventory to be sold. They don't include administrative costs that are geared more toward operating a business.
3. Calculate gross profit. Subtracting the COGS from gross sales gives you the gross profit.
4. Calculate OpEx. These are expenses that are incurred to run the business. They include rent, utilities, salaries, 澳洲幸运5官方开奖结果体彩网:marketing expenses, maintenance and repairs, and 澳洲幸运5官方开奖结果体彩网:property taxes. These costs are necessary to run the business, but they're not necessarily correlated to the production of a specific good that's sold.
5. Calculate the operating profit. Deduct the operating expenses from the gross profit to arrive at the operating profit.
6. Calculate interest and taxes. Interest and income taxes are two expenses that aren't usually included in OpEx. They're reported below operating profit and included when calculating net profit or net income.
7. Calculate net profit. Deduct the interest expenses and taxes paid during the period from the operating profit to arrive at the net income.

Example of Revenue vs. Profit

Amazon (AMZN) reported its fiscal year 2024 results in February 2025. The company generated $272.31 billion in net product sales and $365.65 billion in net service sales during that period. Both of these amounts include contra-revenue accounts such as returns but the general direction of these accounts is to report only money earned before broader company expenses.

The company's total net revenue was therefore $637.96 billion for the 12 months ending Dec. 31, 2024, even though the word sales is used on Amazon's financial statements.

Analysts must review the expense side of operations to bridge from total revenue to total profit. Amꦑazon spent over $326.29 billion on the COGS. The company had over $569.37 billion of total operating expenses in total omitting expenses such as taxes or interest.

Amazon reported $637.96 billion in revenue and a profit of $59.25 billion. Keep in mind that revenue isn't always an indication of profit. Some companies, including Amazon, may report record levels of revenue though they have minimal or no net positive profit because of the cost structure and one-time expense implications.

Other Related Terms

澳洲幸运5官方开奖结果体彩网:Accrued revenue is the same as unrealized revenu♑e. It's the revenue earned by a company for the delivery of goods or 𝔉services that customers have yet to pay for.

Let's say a company sells widgets for $5 each on net-30 terms to all its customers. It sells 10 widgets in August. It invoices its customers on net-30 terms, so they won't have to pay until 30 days later on Sept. 30. August's revenue will be considered accrued revenue as a result until the company receives payment from its customers.

The company would recognize $50 in revenue on its income statement and $50 in accrued revenue as an asset on its 澳洲幸运5官方开奖结果体彩网:balance sheet. The cash account on the income statement increases whe🤪n the company collects the $50. The accrued revenue account decreases, and the $50 on the balance sheet remains unchangedﷺ.

Accrued revenue isn't the same as unearned revenue. It's the opposite. Unearned revenue accounts for money prepaid by a customer for goods or services that haven't yet been delivered. A company would recognize the revenue as unearned and wouldn't record it on its income statement until the period for which the goods or services were delivered, if it requires 澳洲幸运5官方开奖结果体彩网:prepayment for its goods.

The Bottom Line

Revenue and profit show up on a company's income statement. Revenue is called the top line, while profit is the bottom line. Both are important to consider when making investment decisions, but investors should remember that revenue is the income a firm makes without taking expenses into account. Be sure to account for all the expenses a company has, including wages, debts, taxes, and other expenses, when determining its profit.

Correction—July 25, 2024: This article has been corrected to state that only property taxes are included in operating expen✅ses and that the $50 on the balance sheet would remain unchanged in the accrued revenue example.