Revenue is the sum of sales of all of a company’s goods or services.
In other words, it’s the amount of all transactions made by the company in the course of its business activity. It’s also sometimes referred to as “sales” or the “top line.”
To be more precise, only sales of goods and services and their assets are included in the calculation of revenue.
Revenue is calculated as follows: "Sales price X quantities sold." Note that revenue is different from net income, which takes revenue and then subtracts depreciation, cost of goods sold, taxes, interests, and other business expenses.
It can be calculated over any period, although it’s often presented on a monthly, quarterly, or annual basis.
Revenue is widely used and is considered one of the most important sales performance indicators. In particular, it’s used to define the break-even point.
However, used alone, it doesn’t really allow for an evaluation of the profitability and well-being of a company. To be relevant, it’s better to observe the variation in sales over time, from one period to another.
Similarly, comparing it to competing companies in the same sector of activity allows you to situate yourself in your market.
To calculate revenue, the date of transfer of ownership is used, not the date of invoicing. In other words, revenue is calculated with the amounts actually collected and not with the invoices issued.
Whether for an individual sole proprietor or a corporation, the business’s accounting department must strive for proper revenue calculations, not just to have a true overview of how the business is doing but also to ensure accurate tax returns.
To really evaluate a company's performance, the use of revenue alone isn’t sufficient. For more relevance, it’s better to correlate it with other indicators such as gross margin, gross operating surplus, net profit, or sales collected vs. outstanding customers.
Finally, when a company has several subsidiaries, it’s beneficial to observe its consolidated revenue. This is calculated by adding the sum of the sales of all the subsidiaries in the group, but eliminating internal sales between the subsidiaries.
