Revenue, also known as sales or turnover, is the total income generated from normal business operations, including the sale of goods and services. It is calculated by multiplying the price of goods or services by the number of units sold. Revenue appears at the top of the income statement and does not account for any costs or expenses.

Profit, also known as net income, is the amount of money that remains after all expenses, including costs of goods sold (COGS), operating expenses, interest, taxes, and other costs, have been deducted from the total revenue. It includes different types such as gross profit, operating profit, and net profit. Profit appears at the bottom of the income statement.

What are the key differences between revenue and profit?

Revenue is the total income from sales, without deducting any expenses, representing the gross earnings from business activities. Profit is the residual income after all expenses are deducted from revenue, representing the net earnings and indicating financial health and performance. Revenue appears at the top of the income statement, while profit is at the bottom.

Can you provide an example of revenue?

If a business sells 500 units of a product at $20 each, the revenue is calculated as 500 * $20 = $10,000.

Can you provide an example of profit?

If the same business has $7,000 in total expenses, including COGS, operating expenses, and taxes, the profit is calculated as $10,000 (revenue) - $7,000 (expenses) = $3,000.

What is the difference between revenue and profit?

Difference Between Revenue and Profit

Revenue and profit are key financial metrics for any business, but they represent different aspects of financial performance.

Revenue

Definition: Revenue, also known as sales or turnover, is the total income generated from normal business operations, including the sale of goods and services.
Calculation: Revenue is calculated by multiplying the price of goods or services by the number of units sold. For instance, if a company sells 1,000 units of a product at $10 each, its revenue is $10,000.
Position in Financial Statements: Revenue appears at the top of the income statement as the “top line” figure.
Nature: Revenue does not account for any costs or expenses associated with producing or delivering goods and services. It purely reflects the total earnings from sales activities.

Profit

Definition: Profit, also known as net income, is the amount of money that remains after all expenses, including costs of goods sold (COGS), operating expenses, interest, taxes, and other costs, have been deducted from the total revenue.
Types of Profit:
- Gross Profit: Revenue minus COGS. It indicates how efficiently a company uses its resources to produce goods and services.
- Operating Profit: Gross profit minus operating expenses (such as wages, rent, and utilities). It measures the profit from core business operations.
- Net Profit: Operating profit minus non-operating expenses like interest and taxes. This is the “bottom line” of the income statement, showing the company’s overall profitability.
Position in Financial Statements: Profit appears at the bottom of the income statement as the “bottom line” figure.
Nature: Profit reflects the actual earnings of a business after all expenses have been accounted for, providing a clear picture of financial health and efficiency.

Key Differences

Revenue: Total income from sales, without deducting any expenses. It represents the gross earnings from business activities.
Profit: The residual income after all expenses are deducted from revenue. It represents the net earnings and indicates financial health and performance.

Examples

Revenue Example: If a business sells 500 units of a product at $20 each, the revenue is 500 * $20 = $10,000.
Profit Example: If the same business has $7,000 in total expenses, including COGS, operating expenses, and taxes, the profit is $10,000 – $7,000 = $3,000.

Understanding these distinctions is crucial for assessing a company’s financial performance, making informed business decisions, and planning for growth and sustainability.

Sources

- Investopedia

What is the difference between revenue and profit?