Business revenue is income from activities that are ordinary for a particular corporation, company, partnership, or sole-proprietorship. For some business such as manufacturing businesses and grocery stores, most revenue is from the sale of goods. Service businesses such as law firms and barber shops receive most of their revenue from rendering services. Lending businesses such as car rentals and banks receive most of their revenue from fees and interest generated by lending assets to other organizations or individuals.
Revenues from a business's primary activities are reported as Sales, Sales revenue or Net sales. This excludes product returns and discounts for early payment of invoices. Most businesses also have revenue that is incidental to the business's primary activities, such as interest earned on deposits in a demand account. This is included in revenue but not included in Net Sales.[7] Sales revenue does not include sales tax collected by the business.
Other Revenue (a.k.a. Non-Operating Revenue) is revenue from peripheral (non-core) operations. For example, a company that manufactures and sells automobiles would record the revenue from the sale of an automobile as “’regular’” revenue. If that same company also rented a portion of one of its buildings, it would record that revenue as “other revenue” and disclose it separately on its income statement to show that it is from something other than its core operations.
A public company reports its total annual revenues based on its fiscal year. Public companies also report quarterly revenues.
Internally, companies break revenue down by operating segment, geographic region, and product line
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Financial analysis
Revenue is a crucial part of financial analysis. A company’s performance is measured to the extent to which its asset inflows (revenues) compare with its asset outflows (expenses). Net Income is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call. If a company displays solid “top-line growth,” analysts could view the period’s performance as positive even if earnings growth, or “bottom-line growth” is stagnant. Conversely, high income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, as well as income growth, is considered essential for a company's publicly traded stock to be attractive to investors.
Revenue is used as an indication of earnings quality. There are several financial ratios attached to it, the most important being gross margin and profit margin. Also, companies use revenue to determine bad debt expense using the income statement method.
Price / Sales is sometimes used as a substitute for a Price to earnings ratio when earnings are negative and the P/E is meaningless. Though a company may have negative earnings, it almost always has positive revenue.
Gross Margin is a calculation of revenue less Cost of Goods Sold, and is used to determine how well sales cover direct variable costs relating to the production of goods.
Net Income / Sales, or Profit margin, is calculated by investors to determine how efficiently a company turns revenues into profits.
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