Revenue, often referred to as sales or the "top line," represents the total amount of money a company generates from its primary business activities before any expenses are deducted. This income typically comes from selling goods or providing services to customers. It is the first line item on a company's income statement and serves as the starting point for calculating profitability.

Formula

The common formula for calculating revenue depends on the business model. For companies selling products, it's generally: Revenue = Number of Units Sold x Average Price Per Unit. For service-based companies, it might be: Revenue = Number of Services Rendered x Average Price Per Service. For example, if a software company sells 100 subscriptions at $50 each, its revenue from those subscriptions would be $5,000.

Why is it Important for Investors?

Revenue is a fundamental metric for investors because it reflects a company's ability to attract customers and generate sales from its core operations. Consistent and growing revenue indicates strong demand for a company's products or services, suggesting a healthy and potentially expanding business. While high revenue doesn't automatically mean high profits (as expenses are not yet accounted for), sustained revenue growth is often a precursor to profit growth and can signal a company's increasing market share and competitive strength. Investors analyze revenue trends to assess a company's overall business health and its potential for future success.

What is a Good Revenue?

What constitutes "good" revenue is highly dependent on the industry and the company's stage of development. For example, a rapidly growing tech company might aim for 20-50% annual revenue growth, prioritizing market share expansion, while a mature utility company might see 2-5% growth as healthy and stable. Investors generally look for consistent year-over-year or quarter-over-quarter revenue growth. Declining revenue is typically a red flag, signaling potential issues like decreased demand, increased competition, or loss of market relevance. It is crucial to compare a company's revenue growth rates against its direct competitors and the overall industry average to gain a meaningful perspective.