What Is Sales Revenue? What It Is & How To Calculate It
It is possible to learn a great deal about the financial health of a firm by studying its income statement. The income statement relies heavily on sales revenue.
It might be difficult to determine whether income should be included in calculating sales revenue.Sales revenue and an example of how to properly list it on an income statement are discussed in this article.
What Is Sales Revenue?
When a corporation sells its products or services to customers, it generates revenue.Many businesses use the terms "sales" and "revenue" interchangeably, but it's critical to know the difference between the two.
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As a general term, "revenue" refers to the total amount of money a corporation makes.Sales revenue is a component of total revenue.It is possible to make money outside of the selling of goods or services through interest on bank accounts or investment returns.
It's common to refer to sales revenue simply as "sales" when describing the revenue generated solely by the sale of goods or services.It excludes sources of income that aren't generated by selling something.Not all revenue is sales, but sales are a component of all revenue.Due to its many sources, revenue is usually always more than sales revenue.
Before any costs are deducted, the amount earned from the sale of goods and services is referred to as sales revenue.Calculated over a period of time such as a financial quarter or calendar year.Sales revenue can be compared from quarter to quarter or year to year in this way.
On a financial record known as an income statement, sales are listed.When a corporation reports its earnings, losses, and expenses, it is known as an income statement.Profit and loss statements and income statements are other names for the same thing.Income statements are valuable for a wide range of stakeholders, including business owners and managers, investors, and stockholders, who can use them to make key choices regarding budgets and financial goals.
The top line of an income statement typically includes revenue from sales.Increasing revenue from a previous income statement is what is meant by "top-line growth.".To put it another way, "bottom line" refers to a company's overall net profit, which is the sum of its revenues and expenses minus losses.In an income statement, net profit is listed at the bottom.
An organization's total revenue as well as its total expenses and losses are shown in the space between the two axes of revenue and net profit.The net profit is calculated using all of the figures above the bottom line.
How To Calculate Sales Revenue And Example
Using Roosevelt's Bears and Accessories as an example, the following is how the company's revenue is calculated:
Product revenue: 40 Bears x $25 = $1,000
Services revenue: 5 Bears Mended x $20 = $100
The most crucial thing to keep in mind when it comes to sales revenue is that it must come from the company's main operations.Revenue from the sale of bears generated by the company is referred to as sales.
Sales Revenue And The Income Statement
Sales revenue is the first line on the income statement.
There are two explanations for this.In the first place, it serves as a starting point for calculating net profit.To calculate gross profit, income is divided by the cost of items sold.
The operating margin, or EBIT, is calculated by subtracting depreciation and SG&A expenses from gross profit.Pre-tax income is EBIT minus interest expenditure, while net income is pre-tax income minus taxes.
When projecting the income statement using the top-down technique, sales revenue plays a vital role because it's on top of everything else.Forecasts for future eras based on historical data are made.Expenses that fall below sales income are generally stated as a proportion of that revenue, and this is common practice.
First and foremost, it serves as a reference point for the rest of the statement's calculations.This is also why sales revenue is referred to as the "top line" in the business world.
Sales Revenue Example
Amazon's 2017 annual report (10-k) offers a breakdown of its sales by product and service categories, as seen below.Amazon made $178 billion in net sales last year, including $119 billion in product sales and $59 billion in service sales.To see this in action, you can see it at the top of the income statement, where all of the company's expenditures and earnings or losses are listed.
Why Is Sales Revenue Important?
If sales revenue is calculated and recorded correctly, the company can:
- Calculate the profitability of a business.
Core business activities may only be judged on the basis of revenue generated by sales.
- Invest your money wisely.
Breaking sales income down by product category helps firms identify which items or categories are doing well and which ones are suffering..The corporation can then alter its strategy in response to this information.The next month's production plan could, for example, be increased in order to fulfill the demand for products that move more quickly.
- Inquire about its financing or contract eligibility.
A number of government contracts and loans are only available to enterprises with a specified income level.
- Valuation is determined.
It's not uncommon for sales to play a significant role in company valuations, especially in the software industry.
Having answered the question, "what is sales revenue?" you may now go to the next step.By now, it should be obvious that determining sales revenue with precision is critical for every business.
In addition to being a crucial indicator on your income statement, the metric can bring several advantages to your firm.For example, it helps you gain a better grasp on your company's revenue and products.
That stated, you should begin calculating your revenue immediately to ensure that you take full use of the activity's advantages.