Difference Between Revenue vs Profit
What is Revenue?
Revenue is the amount of money earned by a firm from its regular business activities. It is computed as the number of units sold multiplied by the price of the goods/services. Revenue is mentioned as Sales on the Income Statement. In this article, we will learn the topic of Revenue vs Profit.
There are two types of Revenues –
- Operating Revenue which is generated from the regular business activities.
- Non-Operating Revenue is produced through other business activities i.e. Rent, Dividends, etc.
What is Profit?
Profit is the money which remains with the business after deducting all the essential expenses required for running the business. The residual is the profit and if expenses exceed the income then it’s termed as a Loss.
There are primarily two types of Profit
- Gross Profit is the gain earned post subtracting trade expenses from Total Sales.
- Net Profit is the gain after deducting administration, selling, other expenses and taxes applicable from the revenue.
The difference between both of them can be understood with a simple income statement format.
Revenue (Total Sales)
(-) Cost of Goods Sold
= Gross Profit
(-) Salary Paid
(-) Office & Administration Expenses
(-) Depreciation
(-) Taxes
= Net Profit
Head to Head Comparison between Revenue vs Profit (Infographics)
Here are the top 5 difference between Revenue vs Profit
Key Differences between Revenue vs Profit
Here are the key difference between Revenue vs Profit-
- Revenue is the total income generated by a business from the sale of goods/services whereas Profit is the surplus which remains after deducting all expenses and taxes associated.
- Total revenue is interdependent of profit and will exist since it is the reason for a business being established. However, profit may not necessarily accrue. If the expenses are more than the income, then the firm is incurring a loss and the aspect of profit will not appear in this case.
- Prospective investors and shareholders would look at both Revenues vs Profit but the component of profit and the percentage of profit converted from revenues is something which will be extensively looked at.
- The amount of revenue cannot be controlled since it is determined by multiple internal and external factors whereas the net profit can be monitored and managed accordingly since the expenses are generally internal in nature. In difficult situations when sales are not rising, the expenses are the first ones to be controlled since both can have an impact on the overall profit margins.
- Sales revenue identifies the quantity demanded at a specific price whereas profits reveal how much value a business will capture at a given price.
Revenue vs Profit Comparison Table
Let’s have a look at the Comparison Table Revenue vs Profit
|
Basis of Comparison |
Revenue |
Profit |
|
Meaning |
Proceeds from various activities such as Sale of Goods/Services |
Excess left after deduction of input costs, associated expenses and taxes. |
|
Formula |
Total Sales minus Total Returns |
Total Revenue minus Total Expenses |
|
Types |
Operating Revenue & Non-Operating Revenue |
Gross Profit & Net Profit |
|
Position on Financial Statement |
Appears on the Trading account |
Appears on the income statement and transferred to the Balance Sheet. |
|
Importance |
Essential for operating a business |
Essential for growth of business and survival |
Goals for Business – Revenue vs Profit
- Increasing revenue as a goal should not only focus on increased sales but it should also focus on the price at which the revenue is increased. The price of the product should cover all the increasing expenses as well.
- Increasing profits may have a direct link with the increased revenues. Higher the revenues, higher can be the profits. It should also be noted that the rate of increasing the revenue vs profits may differ or probably be less in the case of profits.
- Enhancing of profit margin is a completely different situation. The profit margins are increased when the overall profits are rising faster than the expenses. Efficient profit margins can be achieved through Profit maximization and Minimisation of costs. It is a difficult balance but it can ensure the smooth functioning of a business over a long time frame.
Conclusion
The concepts of difference between both are complex but very essential for the survival of any kind of business around the globe. There are various kinds of macroeconomic situations and business dynamics which are confronted but both earned signify the financial existence. It also gives a snapshot of how the firm is expected to survive in the future. Thus, both are equally important for the present and future of any business.
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