The key difference between Profit vs Revenue is that Profit refers to the amount realized by the company after deducting the expenses from total amount of revenue, whereas, the term 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.
Differences Between Profit and Revenue
If revenue is a superset, profit would be a subset. When a company doesn’t generate revenue, there’s no question of earning profits.
Here’s why. Let’s say that Gigantic Inc. has made $100,000 at the end of the year 2017. Now, we found out that 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.
4.9 (1,067 ratings)
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 Profit and Revenue, one needs to master the income statement. Once you understand how the income statement works, the rest would be easy.
- The first item on the income statement is “gross sales”. “Gross sales” is the product of the number of units sold and the selling price per unit. We can say that this is revenue, but from this amount, the firm needs to deduct any sales return or sales discount (if any).
- Deducting the sales discount/sales return from the gross sales will give us “net sales”. And this is what we call “revenue”.
- Now, revenue can be of two types – operating revenue (revenue that’s generated via operations) and non-operating revenue (revenue that’s generated from other sources).
- In the income statement, we would deduct the cost of goods sold from the net sales and we would get the gross profit. And then from gross profit, we will deduct the operating costs and we would get operating profit which is also called EBIT (Earnings before interests and taxes).
- Then from EBIT, we would deduct the interest and taxes (and add back any other incomes if at all) and we would get PAT (Profit After Taxes). PAT can also be termed as net profit.
Profit vs Revenue Infographics
Here we provide you with the top 6 differences between Net Profit vs Revenue
Profit vs Revenue Key Differences
Here are the key differences between revenue vs profit –
- Profit cannot exist if there’s no revenue. Revenue isn’t dependent on profit. Rather revenue can exist without profit (for example, if a start-up has more expenses than revenue, then there would no profit, but revenue would exist).
- Profit is the result of deducting expenses from the revenue. On the other hand, revenue can be computed by multiplying the number of goods sold with the selling price per unit.
- Profit can be of two types – gross profits (close to operating profit) and net profit (including the incomes from other sources). Revenue can also be of two types – operating revenue (revenue earned from the operations of the organization) and non-operating revenue (revenue earned from other sources).
- Both profit and revenue can be found in the income statement. If one understands the income statement well, understanding profit and revenue would be quite easy.
Profit vs Revenue Head to Head Differences
Now, let’s have a look at the head to head differences between revenue vs profit.
|Basis for comparison between Net Profit vs Revenue||Profit||Revenue|
|Meaning||Profit is the amount left after deducting the expenses from the revenue.||Revenue is the product of the numbers of goods sold and the selling price per unit. We can also include other incomes as part of the revenue.|
|Equation||Profit = Revenue – Expenses||Revenue = No. of units sold * Selling price per unit|
|Superset & Subset||Profit is a subset of revenue.||Revenue is a superset of profit.|
|Dependence||Without revenue, there can be no profit.||Without profit, revenue can be earned (if the revenue is lesser than expenses, there will be loss).|
|Types||Profit can basically be of two types – net profit and gross profit.||Revenue can also be of two types – operating revenue and non-operating revenue.|
|Found in||Profit can be found on the income statement. Rather net profit is the last item on the income statement.||Revenue can also be found in the income statement. It’s the first item (if we start with net sales) of the income statement.|
Profit vs Revenue – Final Thoughts
Profit is a part of revenue. And profit is an indicator that a company is financially healthy. When business starts its operations, it may generate revenue, but rarely it makes profits since the upfront costs are quite high. After few years of operations, an organization can break even and go beyond the break-even point to enjoy the profit.
Revenue vs Profit both is direct indicators of where a company is traversing toward.
Profit vs Revenue Video
This has a been a guide to the top differences between Revenue vs Profit. Here we also discuss the Net Profit and Revenue differences with examples, infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge in Accounting –
- Leading vs Lagging Indicators | Comparision
- Examples of Common Size Balance Sheet
- Vertical Analysis Formula – Examples
- Operating Profit and Net Profit | Which is Better?
- Markup and Margin Differences
- Revenue vs Net Income Differences
- IFRS vs Indian GAAP
- Vertical Analysis Common Size
- Top 4 Differences Between Profit vs Income
- Differences Between Revenue vs Earnings
- Contribution Margin Formula