hat is Revenue?
Proceeds generated by a company from its core operations, such as sales of goods or delivery
of services is called revenue. Thus, revenue for a grocery seller would be generated from
the sale of its grocery products. Meanwhile, bank’s revenue comes from the interest on
the loans that it provides.
The sale of goods or services (Retail store), interest (banks), rent (leasing company) are
familiar sources of revenue.
What is the Difference between Income and Revenue?
Revenue takes into account the discounts provided to the buyers or deduction on the return of
the goods. Significantly, revenue is different from income. While revenue called as ‘top
line’ parameter represents gross sales, the income primarily denotes ‘net income’
or ‘net earnings’ after subtracting all the expenses. Income Is referred to as bottom
line parameter for the company.
What is the Significance of Looking at Revenue?
The revenue remains one of the critical focus of a company backing the survivability and
sustainability of their business. In order to gauge the performance of a particular company
or business, the analysts evaluate the revenue generated, the trends in revenue growth and
comparison with other players in similar businesses.
The current or potential revenue should justify the fixed and variable expenses incurred by
the company. Thus, if a firm’s total costs are consistently exceeding the current or
prospective revenue, then there are chances that it would face survivability issues in
the future.
The revenue can be generated via different streams that relate to catering to the diverse
needs of the customers by the provision of services or sale of goods. One-time projects,
the recurring revenue models or the single-time delivery of goods or services are some of
the revenue generation routes.
What are the Types of Revenue?
Operating Revenue
The operative revenue is generated from primary activities of the company. It typically gives
insight on the effectiveness of business operations and thus can be used for analysing the company’s
performance across different periods. In general terms, it is the operating revenue that is
commonly referred to as revenue for the company.
Significantly, operating revenue bears strong significance when evaluating the company’s
financial performance. Besides, revenue figures released by the company can impact its stock
performance. Analyzing revenue trends primarily sheds light on company’s future sustainability
and growth.
Besides, inclusion of financial proceeds as operating revenue depends on nature and type
of business.
For example, for a pet shop, the operating revenue would come from the sales of pet along
with pet-related supplies and accessories. The pet show may also raise funds through
donations. However, grants are not primary business activities, and thus it would not
be referred as operating revenue.
Non-Operating Revenue
The non-operating revenue, on the other hand, is derived from activities which do not come
under the core operations of the company. Generally, such kind of revenue does not have
a consistent trend and can be infrequent. Owing to inconsistency in their generation
and their unusual nature, such cannot be solely used to gauge a company’s performance.
Nevertheless, they are used in combination with the Operating revenue to get a bigger
picture of the company’s operations as well as other strategic undertakings during the
period. When evaluating business performance, one should, however, be cautious that a large
amount of non-operating revenue does not obscure the operating performance of the company.
The donations in the above pet shop example represent the non-operating revenue. However,
for a non-profit organization, the donations would be an operating revenue. Thus, depending
on the nature of the business, operating revenue differs.