How do you calculate revenue?


Quick Answer

Business owners calculate gross revenue by multiplying the quantity of goods or services sold during a specific period by the sales price for each item, as explained by the Udemy website. Basically, revenue is the amount of money a company generates from its primary business activities.

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Full Answer

Revenue is a core component used to generate financial statements to analyze business activities. It is typically listed on the first line of an income statement as "Sales," which is gross revenue minus the cost of returned items and any discounts given to customers off of regular prices, according to Entrepreneur magazine. Once returns and discounts are subtracted from gross revenue, the total is called "net revenue," which is a key component in calculating gross profit and net income.

Businesses also track revenue generated from activities that are not sales of their core goods or services, such as rental or investment income for a retail store. For example, if a grocery store rents out an area of its building to a coffee shop, that rental income gets placed in a category called "other revenue" on financial statements, according to Investopedia. This allows a company to only consider revenue from its primary business activities when analyzing financial ratios, such as gross margin, that help determine the financial health of the business.

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