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What is Revenue?

Revenue, also called sales (or turnover, in the UK), refers to the value of the products and services a company sells.

Net revenue usually refers to a company's sales net of discounts and returns. Other related terms include accrued revenue, deferred revenue and operating revenue.

Revenue Example

Let's assume grocery store XYZ sold $100,000 worth of food for the year. It would record these sales as revenue on the very top of its income statement (as shown below).

Revenue Pic(1)

Why Revenue is Important

Revenue is a measure of how much raw income a company is bringing in from sales of its products and services. A company that sees its revenue rise every year signals that a company is selling more of its products and services which can help it grow. Falling revenues each year signal that a company is faltering or shrinking.

Generally, the more revenue a company brings in the more money a company has to work with to pay expenses and make a profit.

Generally accepted accounting principles (GAAP) and industry standards often determine when a company can record revenue. For example, if a wholesaler sells a product for $10,000, does it record the sale when it receives the order, when it ships the product a week later, or when it receives payment from the buyer a month after that? Revenue recognition standards answer these questions, which vary by industry and type of sale. You can usually learn what a company's revenue recognition policies are in the notes to its financial statements.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.