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Revenue vs. Profit: What’s the Difference?

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Here, we compare revenue vs profit.Whether you’re a business owner or an investor, understanding the key differences between revenue and profit is important. You also should know how to calculate each. Revenue and profit measure business performance and relate closely. However, they are also quite different. Here are the differences between the two.

Consider working with a financial advisor as you develop your ability to analyze quarterly and annual reports.

Defining Revenue

Revenue consists of all income generated by business activities during an accounting period. Both revenue and profit are only relevant in relation to a specific accounting period, such as a quarter or year.

Some consider revenue “the top line” of a company’s financial statement. It may not actually be the topmost figure, however. This is the case with the Facebook report, which lists “Total revenue” on the fourth line. Wherever it appears, revenue consists of all income before expenses.

There are different sources of revenue. Revenue may come from:

  • Sales of products
  • Fees charges for services
  • Rent
  • Interest
  • Commissions
  • Any other income generated by business activities is revenue

Revenue may be called total revenue, as in the Facebook example above. It can also be called sales or turnover. These terms generally refer to the same thing. However, there are other types of revenue as well.

For instance, interest income exists separate from income generated by a company’s main business selling goods or services. Facebook’s main business is selling advertising. Revenues from “Payments and other fees” are added to advertising revenues to come up with total revenue.

Net revenue is another type of revenue that may come up from time to time. Net revenue is revenue minus adjustments for items such as discounts, refunds and returns.

There’s also accrued revenue. This is the revenue a company earns by delivering goods or services not yet paid for by the customer. When a customer pays for undelivered goods or services, that is unearned revenue. Both accrued revenue and unearned revenue are important for accounting and tax purposes.

Defining Profit

Here, we compare revenue vs profit.Profit is what remains of revenue after expenses. When people talk about the bottom line, they’re talking about profit.

Profit is usually the last line on the income statement and, in many ways, the most important. However, it’s not independent of revenue. It’s entirely possible to have revenues without profits. But it’s not possible to have profits without revenues.

Net income is another term for profit. The Facebook financial report uses this term.

Many consider profit “the bottom line,” but it isn’t the last line on Facebook’s report. Instead, the last line reports earnings per share. Earnings per share divide net income by the number of outstanding shares. Many companies see it as a more important metric than net income.

There are different forms of profit and revenue.

  • Gross profit: The cost of goods sold (COGS) subtracted from revenue. COGS consists of costs directly tied to producing whatever good or service the company sells. It may include raw materials and direct labor employed in production. Gross profit is normally bigger than net income. It takes into account other expenses such as taxes, as shown in the Facebook example.
  • Operating profit: This is the gross profit minus operating expenses. Operating expenses may include additional costs such as rent and utilities. These are costs the business incurs. However, they don’t directly relate to producing goods or services. Facebook reports this as “Income from operations.”

While revenue can’t ever be a negative number, profit can. In this case, it’s a loss. A negative profit number or loss may be presented with a minus sign, in parentheses or in red ink.

Profit and Revenue Example

Here is a selection of data from a past Facebook financial report. It serves as an illustration for this discussion of revenue and profits.

Financial Highlights For a Single Quarter

Three Months Reporting
In millions, except per share amounts
Revenue:
   Advertising$16,624
   Payments and other fees$            262
Total revenue$       16,886
Total costs and expenses$       (12,260)
Income from operations$  4,626
Provision for income taxes$  (2,216)
Net income$  2,616
Diluted earnings per share (EPS)$      0.91

The Bottom Line

Revenue consists of all income before costs. Profit is what remains of income after costs. These are perhaps the two most fundamental and basic items in a business’s income statement. It’s important to understand how each is measured so that you know how much cash you really have to operate from.

Financial Tips

  • Wondering how revenue and profit are affecting your bottom line? Consider speaking with a financial advisor to find out. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Profit and cash flow are not the same. Cash flow is the amount of cash flowing into and out of a business. It’s possible to have good profits and poor cash flow due to the timing of payments and receipts. Both are important but cash flow can have more immediate impact on a business’s short-term prospects.

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