Difference between revenue and profit

Oct 1, 2011 by

Difference between revenue and profit

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  1. khristine

    Revenue is defined as the total amount of cash that a company receives in doing its affairs. It refers to the entire earnings or cash produced in a business that is primarily derived from sale of goods, services, and even both. In some cases it is also called as “gross income” or simply “sales”.

    In contrast, the term profit is referred to as the “net income” of a business. It may also refer to earnings received from sales of goods, services, or both but with deductions coming from money spent in using raw materials, interest on loans, payroll, taxes, and other expenses needed for production and distribution that are mainly involved in the business.

    However, in some cases some businesses would try to boast off their revenues (instead of profit) to draw attention of investors and make other people think that their company is doing well. The fact is, “profit” is viewed to be the most reliable basis in measuring a business’ success. Declaring a company’s revenue is misleading as it is not able to tell people the true condition of a business whether its earnings are much greater than its expenses. There are cases when a business may earn large amount of revenue, but when expenses are taken off the result is the other way around. One can only measure if a company is doing well if it is able to earn extra income as compared to its overall expenses, the concept by which profit is all about.

    On one hand, revenue is an important variable in computing a business’ earnings. It tells people how much total money a business has. And, it is also able to show people and investors alike that the business have clients and is able to sell in the market. But on the other hand, true earnings can only be measured from a business’ “profits” point of view. A business is doing well if its gains are able to rise above its losses.

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