Revenue vs Sales

Difference Between Revenue vs Sales

Revenue usually refers to the total income generated from different activities constituting the primary operations of a business. A broader definition of revenue constitutes non-operating income as well. Sales refer to the amount charged in exchange for a business’s products or services as a part of its primary operations. Sales are often interpreted as a volume measure for business transactions.

Let us study about Revenue and sales in detail:

A company may have high sales due to a high volume of goods sold but that does not mean that the company has generated high income if those goods are sold at lower prices compared to the prevailing market price. Apart from sales of goods and/or services, revenue could include the following activities undertaken in the ordinary course of business:

• Income from investments in shares, bonds, etc., as in the case of financial institutions
• Rent on a property, as in the case of real estate investment trusts
• Installation or service income
• Charges for late payment by customers
• Royalty/Licensing fees, leasing income
• Other fees received through professional services travel reimbursements etc.
• Income received by Government from taxes, fees, fines, and other services

The above list of revenue items is not exhaustive. For most manufacturing/service companies, sales are a significant part of operating revenue. Again, there are industries where sales do not constitute a significant part of operations like the financial sector where the major component of revenue is interest income or the REIT sector where rental income is the major revenue component.

Some companies include non-operating income or income from peripheral activities also in revenue, for example, money awarded from litigation. It is important to distinguish between operating and non-operating revenue since non-operating revenue is often non-recurring, involving one-off gains and hence need to be adjusted for comparisons/valuation.

Where a sale of goods/services is a significant part of primary operations, it is important to segregate between sales and total revenue of a company so that core operations can be separated and analyzed in greater detail.

Let’s consider the item “Revenue from Operations” in Income Statement of Tata Motors for 2017-18 as follows:

Revenue from Operations (Rs. in cr.)	Year ended March 31, 2018
Sale of products	2,83,748.32
Sale of services	3,033.90
Finance revenues	2,604.03
Other operating revenues	6,023.09
Total	295,409.34

As can be seen, a major component of operating revenue is the sale of products and services while finance revenue and other revenues generated from core operations are added to sales to arrive at the total operating revenue.

Head to Head comparison Between Revenue vs Sales (Infographics)

Below is the top 4 difference between Revenue vs Sales

Key Difference between Revenue vs Sales

Both Revenues vs Sales are popular choices in the market; let us discuss some of the major Difference Between Revenue and Sales:

• Sales refer to income generated from an exchange of goods and services while revenue is the total income generated in the ordinary course of business
• Sales is always an operating income and a result of primary activities while revenue can be both operating and non-operating income and hence could be non-recurring as well as one-off items
• Sales are one of the sources of a company’s revenue while revenue is an outcome of all sources of income i.e. sales, interest, dividend, lease income, royalty fees etc.
• A sale is a subset of revenue, hence there are no sales without revenue. However, revenue can exist without sales, since there are diverse sources of revenue
• Revenue signifies a company’s efficiency in generating returns from investments made while sales signify a company’s capability in selling its products/services

Revenue vs Sales Comparison Table

Below is the topmost Comparison Between Revenue vs Sales

The Basis Of Comparison	Revenue	Sales
Definition	Refers to total income proceeds from diverse activities of a business	Refers to income from sales of goods and services to customers
Operating vs Non-operating income	Includes both operating and non-operating income or income generated from both primary and peripheral activities	Is a part of operating revenue generated only from primary business operations?
Calculation	Adding income from sales, interest, dividend, royalty, lease etc.	The economic value of product/service exchanged calculated by multiplying total goods/services sold with its selling price
Significance	Revenue indicates a company’s ability to allocate resources efficiently for increasing the earnings potential	Sales indicate a company’s ability to sell primary goods/services to increase profitability

Conclusion

Most companies earn money by selling products and services. In the absence of other sources of revenue, they use the terms Revenue vs Sales interchangeably. However, sales represent only one source of revenue and often this is the major source, especially, in the case of the manufacturing sector. There could be many other sources of income for a business-like interest income, rental income, lease income, royalty/licensing fees, fines, etc.

Companies report revenues at the top of the income statement and include income from core operations or primary activities only within the revenue component. Again many companies include non-operating income or income from peripheral activities in revenue as well and these represent non-operating revenue. In contrast, the sale of goods and services is a part of operating revenue only. Consider the sale of old mixer machinery by a soap manufacturing company. Since this sale is not a part of core operating activity for the company, gains from the sale would figure below operating income in the income statement and not a part of operating revenue. Instead, this gain from the sale of machinery would be considered a part of non-operating revenue.

There are sectors where sales may not be the major component of core operations like for REITs, a major component of operating revenue is rental income; for financial institutions, it is interest income; for an equipment leasing company, it is lease rent. The most striking example is the Government revenue, sources of which are direct and indirect taxes, fees, fines, and other services with most of these sources not involving the sale of goods or services.

It is essential to have a thorough understanding of Revenue vs Sales while studying the financials of a company to identify non-recurring and one-off income items and adjust those for valuation and/or comparison purposes.

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