When public companies report their quarterly earnings , two figures that receive a lot of attention are revenues and EPS. A company beating or missing analysts' revenue and earnings per share expectations can often move a stock's price.
A company's revenue may be subdivided according to the divisions that generate it. For example, a recreational vehicles department might have a financing division, which could be a separate source of revenue.
Revenue can also be divided into operating revenue —sales from a company's core business—and non-operating revenue which is derived from secondary sources. As these non-operating revenue sources are often unpredictable or nonrecurring, they can be referred to as one-time events or gains. For example, proceeds from the sale of an asset, a windfall from investments, or money awarded through litigation are non-operating revenue.
In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral or resource rights, as well as any sales made. For non-profits, revenues are its gross receipts. Its components include donations from individuals, foundations, and companies; grants from government entities; investments; fundraising activities; and membership fees. In terms of real estate investments, revenue refers to the income generated by a property, such as rent or parking fees.
When the operating expenses incurred in running the property are subtracted from property income, the resulting value is net operating income NOI. Revenue is the money a company earns from the sale of its products and services. Cash flow is the net amount of cash being transferred into and out of a company. Revenue provides a measure of the effectiveness of a company's sales and marketing, whereas cash flow is more of a liquidity indicator.
Both revenue and cash flow should be analyzed together for a comprehensive review of a company's financial health. For many companies, revenues are generated from the sales of products or services.
For this reason, revenue is sometimes known as gross sales. Revenue can also be earned via other sources. Inventors or entertainers may receive revenue from licensing, patents, or royalties.
Real estate investors might earn revenue from rental income. Revenue for federal and local governments would likely be in the form of tax receipts from property or income taxes. Governments might also earn revenue from the sale of an asset or interest income from a bond. Charities and non-profit organizations usually receive income from donations and grants.
Universities could earn revenue from charging tuition but also from investment gains on their endowment fund. Accrued revenue is the revenue earned by a company for the delivery of goods or services that have yet to be paid by the customer. In accrual accounting, revenue is reported at the time a sales transaction takes place and may not necessarily represent cash in hand.
Deferred, or unearned revenue can be thought of as the opposite of accrued revenue, in that unearned revenue accounts for money prepaid by a customer for goods or services that have yet to be delivered. If a company has received prepayment for its goods, it would recognize the revenue as unearned, but would not recognize the revenue on its income statement until the period for which the goods or services were delivered.
A company has a cost to produce goods sold, as well as other fixed costs and obligations like taxes and interest payments due on loans. As a result, if total costs exceed revenues, a company will have a negative profit even though it may be bringing in a lot of money from sales. Financial Analysis. Tools for Fundamental Analysis. Financial Statements. Your Privacy Rights. The former affects values of businesses and entities.
The latter affects net income. In each period, long-term noncash assets accrue a depreciation expense that appears on the income statement. Depreciation expense does not require a current outlay of cash, but the cost of acquiring assets does.
Amortization is a similar process to deprecation but is the term used when applied to intangible assets. Examples of intangible assets include copyrights, patents, and trademarks. Privacy Policy. Skip to main content. Financial Statements, Taxes, and Cash Flow. Search for:. The Income Statement. Learning Objectives Construct a complete income statement.
Key Takeaways Key Points The income statement consists of revenues and expenses along with the resulting net income or loss over a period of time due to earning activities. The income statement shows investors and management if the firm made money during the period reported. The operating section of an income statement includes revenue and expenses. Revenue consists of cash inflows or other enhancements of assets of an entity, and expenses consist of cash outflows or other using-up of assets or incurring of liabilities.
The non-operating section includes revenues and gains from non-primary business activities, items that are either unusual or infrequent, finance costs like interest expense, and income tax expense. It is important to investors — also on a per share basis as earnings per share, EPS — as it represents the profit for the accounting period attributable to the shareholders. Key Terms income statement : a calculation which shows the profit or loss of an accounting unit during a specific period of time, providing a summary of how the profit or loss is calculated from gross revenue and expenses gross profit : The difference between net sales and the cost of goods sold.
Limitations of the Income Statement Income statements have several limitations stemming from estimation difficulties, reporting error, and fraud. Learning Objectives Demonstrate how the limitations of the income statement can influence valuation. Key Takeaways Key Points Income statements include judgments and estimates, which mean that items that might be relevant but cannot be reliably measured are not reported and that some reported figures have a subjective component.
With respect to accounting methods, one of the limitations of the income statement is that income is reported based on accounting rules and often does not reflect cash changing hands. Income statements can also be limited by fraud, such as earnings management, which occurs when managers use judgment in financial reporting to intentionally alter financial reports to show an artificial increase or decrease of revenues, profits, or earnings per share figures.
Key Terms matching principle : According to the principle, expenses are recognized when obligations are 1 incurred usually when goods are transferred or services rendered, e. In cash accounting—in contrast—expenses are recognized when cash is paid out.
FIFO : Method for for accounting for inventories. FIFO stands for first-in, first-out, and assumes that the oldest inventory items are recorded as sold first. LIFO : Method for accounting for inventory. LIFO stands for last-in, first-out, and assumes that the most recently produced items are recorded as sold first. Accounting Theories and Concepts. Accounting Methods: Accrual vs. Accounting Oversight and Regulations.
Corporate Accounting. Public Accounting: Financial Audit and Taxation. Accounting Systems and Record Keeping. Accounting for Inventory. Table of Contents Expand. What Is the Income Statement? Understanding the Income Statement. Income Statement Accounts.
Sample Income Statement. Key Takeaways: The income statement summarizes a company's revenues and expenses over a period, either quarterly or annually. The income statement comes in two forms, multi-step and single-step. The multi-step income statement includes four measures of profitability: gross, operating, pretax, and after tax.
The income statement measures profitability and not cash flow. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
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