Revenue

Financial Dictionary -> Investing -> Revenue

Revenue (often called turnover) is a basic financial concept that is at the ground level of every business. It is simply all of the income made by a business through its day to day working activities, such as product sales or payment for a completed service. Other forms of revenue may include interest, dividends and royalties. Revenue is not to be confused with profit.

Where profit is considered the money left over after business expenses, revenue is the raw figure that has yet to have any expenses deducted. The key word in income is "in" as it is virtually any money that comes into the business. For a business to make a profit its revenue has to exceed its expenses. When costs are equal to revenue this is known as breaking even, anything above this (aka the profit) is called the margin of safety. Here is a basic example.

Tom's table making business costs him $500 for 10 batches of wood. Each batch of wood makes 1 table, which is sold at $100. If Tom sells all 10 tables he makes $1000 in revenue, but once the $500 expenses are deducted he only makes $500 profit.

Most businesses with an initial capital investment aim to make enough revenue to become profitable in their first year of operation.
In most country's any individual's income or any income made through a business is liable to be taxed and any hiding of income or accounting fraud is taken very seriously. All businesses or individuals must declare their earnings each year on a tax return.

Revenue is obviously a very important figure in a whole host of different financial ratios and financial analysis. Businesses are always looking to increase revenue, so long as the costs involved in making more output do not out way the working at a lower level of output.