Revenue: Meaning, Types, Formula And Importance

What is Revenue?

Revenue or Sales is the income that comes from a company, which is linked with commercial activities. Sales are considered the majority of the income of an organisation. Money that comes from the normal business activities is also called revenue.

In business terms, revenue can be calculated by multiplying the average price of the sale by the total number of units sold. The gross income can be calculated by deducting the costs from the net income.

The operating income is calculated by deducting the operating costs from the total revenue. Non-operating incomes are generated from irregular sources.

The examples of non-business entities are Individuals, governments, non-profit organisations, private persons, etc. In a company, revenue reflects the performance of the company. It represents how well a company is meeting the customer's demand and operating in its niche.

Importance of Revenue

• It is important that you understand the revenue properly because it provides valuable insights into a company.
• It also tells about the financial performance and the future potential of the company.
• If the revenue is increasing, that means your product is in demand in the market. It eventually leads to an increase in the price of your stocks.
• If the revenue is decreasing, then it will cost the investors to dump their shares.

Types of Revenue

There are 4 types of tax revenue in India:

• Operating Revenue: It is the revenue that comes from the proper business activities.
• Non-operating revenue: It is the revenue that comes from a peripheral source of income, such as investments.
• Deferred Revenue: It includes the unearned income that comes into consideration slowly over time.
• Government Revenue: It includes the funds that are collected by the government for public services.