Revenue
The total amount of money a company receives from selling goods or services before any expenses are deducted. The top line of the income statement.
Revenue is the total money a company generates from selling its products or services, before deducting any costs or expenses. It's also called "sales" or the "top line" because it appears at the top of the income statement.
Formula
Revenue = Price Per Unit × Quantity Sold
For companies with multiple product lines or services, revenue is the sum of all sales.
Example
Apple (AAPL) might report annual revenue of $400 billion from sales of iPhones, Macs, services, and other products. Amazon (AMZN) reports over $500 billion in revenue from retail, cloud services (AWS), advertising, and other segments. This is gross revenue before subtracting costs.
How to Interpret It
- Revenue growth: Year-over-year revenue growth shows the business is expanding. Growth of 5-15% annually is healthy for mature companies; startups might grow 50%+ annually.
- Revenue quality: Recurring revenue (subscriptions, services) is more predictable than one-time sales. Look for sustainable, growing revenue.
- Revenue mix: Companies with diverse revenue streams are more resilient than those dependent on one product or customer.
- Profitability question: Revenue alone doesn't indicate profitability. A company can have growing revenue but shrinking profits if margins compress.
- Revenue per employee: Revenue divided by headcount shows efficiency. Higher ratios often indicate capital-efficient businesses.
Limitations
- High revenue doesn't mean high profit. A company can have $1 billion in revenue and lose money if expenses exceed it.
- Revenue can be inflated by aggressive accounting (recognizing revenue before it's certain, booking returns late).
- Revenue doesn't account for expenses, debt, or taxes, so it's only the starting point for analysis.
- Different accounting standards (recognizing revenue over time vs. at a point in time) can make year-to-year comparisons tricky.
Related Terms
- Net Income — profit after all expenses
- Gross Profit — revenue minus cost of goods sold
- Profit Margin — profit as a percentage of revenue
- Operating Income — profit from core operations