CompanyGraph
Captures total money earned from selling goods or services, exposing the top-line scale of the company's commercial activity before any costs are deducted.
Revenue is the total amount of money the company earned from selling its products or services. It is the top-line number that reflects the overall size of the company's business.
Revenue, also known as sales or top-line, represents the total amount of money a company earns from selling goods or services before any expenses are deducted. As the starting point of the income statement, revenue reflects the scale of business activity and forms the foundation from which all profitability metrics are derived. Growing revenue is typically essential for long-term value creation.
Revenue recognition principles:
- Performance obligation: Revenue is recognised when goods are delivered or services performed
- Measurable amount: The transaction price must be determinable
- Collection probable: Reasonable expectation of receiving payment
Types of revenue:
- Product revenue: Sales of physical goods
- Service revenue: Fees for services rendered
- Subscription revenue: Recurring payments for ongoing access
- Licensing revenue: Fees for intellectual property usage
- Interest/investment revenue: For financial services companies
Why revenue matters:
- Growth indicator: Revenue growth drives enterprise value
- Market share signal: Growing revenue faster than the market indicates share gains
- Profitability foundation: All margins and profits derive from revenue
- Valuation driver: Price-to-sales ratios directly value revenue
Analysing revenue quality:
- Organic vs. acquired: Growth from existing business versus M&A
- Recurring vs. one-time: Subscription revenue is more predictable than project-based
- Geographic mix: Diversified revenue base reduces risk
- Customer concentration: Dependence on few customers creates risk
Red flags:
- Revenue recognition changes: Sudden accounting policy shifts
- Channel stuffing: Pushing excess inventory to distributors to inflate sales
- Bill-and-hold: Booking revenue before delivery
- Round-tripping: Artificial transactions that inflate revenue
Compare revenue growth to industry peers, examine the sustainability of growth sources, and verify that revenue translates into cash collection. Revenue without profit or cash conversion has limited value.
How it relates
Revenue−Cost of Goods SoldCost of goods sold is the direct cost of producing the company's products or services. It includes materials, labor and manufacturing costs and is subtracted from revenue to calculate gross profit.=Gross ProfitGross profit is revenue minus the cost of goods sold. It shows how much the company earns from its products or services before paying operating expenses, interest and taxes.
Revenue÷Shares OutstandingShares outstanding is the total number of shares that exist for this company. It's used to calculate things like market value and earnings per share.=Revenue per Share (TTM)Revenue per share divides total revenue over the last year by the number of shares. It shows how much sales the company generates for each share.
Where it fits
Revenue→Gross ProfitGross profit is revenue minus the cost of goods sold. It shows how much the company earns from its products or services before paying operating expenses, interest and taxes.→Operating IncomeOperating income is the profit the company makes from its normal business operations after paying operating expenses. It shows the performance of the core business before interest and taxes.→Pre-tax IncomePre-tax income is the company's profit before taxes are deducted. It reflects the combined effect of operating performance and non-operating items.→Net IncomeNet income is the final profit after subtracting all expenses, interest and taxes. It is the bottom line of the income statement and represents the earnings available to shareholders.
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