Revenue vs Profit

Differences Between Revenue and Profit

The key difference between Revenue and Profit is that Revenue refers to the income generated by any business entity by selling their goods or by providing their services in an accounting period during the normal course of its operations whereas Profit refers to the amount realized by the company after deducting the expenses from the total amount of revenue.

If revenue is a superset, the profit would be a subset. When a company doesn’t generate revenue, there’s no question of earning profits. Why?

Here’s why. Let’s say that Gigantic Inc. has made $100,000 at the end of the year 2017. Now, let’s say the profit is 10% of the revenue, i.e., $10,000 at the end of the year. Now, if there’s no revenue, what would be the profit? Yes, nil.

But at the same time, without revenue, the loss can exist.

Let’s say a business just started its operations. And upfront, it has incurred $40,000. But unfortunately, at the year-end, they generated no revenue. As a result, the entire expense of $40,000 would be considered a loss.

To understand the revenue vs. profit, one needs to master the income statement. Once you understand how the income statement works, the rest would be easy.

Revenue-vs-Profit

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Profit vs Revenue Infographics

Profit-vs-Revenue

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Key Differences

Profit vs. Revenue Comparative Table

Basis for comparisonProfitRevenue
MeaningIt is the amount left after deducting the expenses from the revenue.Revenue is the product of the number of goods sold and the selling price per unit. We can also include other incomes as part of the revenue.
EquationProfit = Revenue – ExpensesRevenue = No. of units sold * Selling price per unit
Superset & SubsetIt is a subset of revenue.It is a superset of profit.
DependenceWithout it, there can be no profit.Without it, revenue can be earned (if the revenue is lesser than expenses, there will be loss).
TypesProfit can basically be of two types – net and gross profitGross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more.Revenue can also be of two types – operating revenue and non-operating revenue.
Found inProfit can be found on the income statement. Rather net profit is the last item on the income statement.It can also be found in the income statement. It’s the first item (if we start with net salesNet SalesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company's gross sales.read more) of the income statement.

Final Thoughts

Profit is a part of revenue. And profit is an indicator that a company is financially healthy. When a business starts its operations, it may generate revenue, but rarely it makes profits since the upfront costs are quite high. After a few years of operations, an organization can break even and go beyond the break-even point to enjoy the profit.

Both are direct indicators of where a company is traversing.

Revenue vs. Profit Video

Recommended Articles

This has been a guide to Revenue vs. Profit. Here we discuss the top differences between them along with infographics and comparison table. You may also have a look at the following articles for gaining further knowledge in Accounting –

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Comments

  1. Sheikh Afia Zaman says

    It was very helpful. Thank you!

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