Glossary
Revenue
The money a company earns from selling its goods and services in a period, before any costs are subtracted; the income statement’s top line.
On this page
Revenue is the total amount a company earns from its main business activities, such as selling products or providing services, during a period. It is the first line of the Income statement, which is why people call it the "top line." Every other profit measure starts from revenue and subtracts costs, so revenue growth is the most basic sign of whether a business is expanding.
How it works
Companies report net revenue, or net sales: gross sales minus returns, discounts and allowances. Under US accounting rules (GAAP), revenue is recognized when the company delivers what it promised to the customer, not necessarily when cash arrives.
From revenue the income statement works down:
How investors use it
- Growth rate. Year-over-year growth, especially comparing the same quarter a year earlier to avoid seasonal effects, is the headline number in many earnings reports.
- Quality. Growth from existing customers paying more is usually valued above growth bought through acquisitions. Companies often report "organic" growth to separate the two.
- Valuation. For unprofitable firms, analysts often value the company on revenue through the Price-to-sales ratio (P/S) ratio.
Revenue alone can mislead. A company can grow sales by cutting prices or spending heavily on marketing while profits shrink. Pairing revenue growth with Gross margin and cash flow gives a truer picture.