Financial statements are key to a business's overall financial health. This is because seeing the numbers, understanding precisely where things stand enables you to make smarter decisions, plan for contingencies, and make adjustments if the situation calls for it. Gross revenue helps show how well the company is doing by revealing something about the value of that company. In this article, we look closer at what exactly gross revenue is and why it is important to know.
Understanding gross revenue
Gross revenue is going to be the total amount of revenue that a business brings in during the given reporting period. It is also sometimes referred to as gross income. Many companies opt to calculate this number quarterly, but more often it will be done annually. This number will not factor in operating expenses or taxes or the cost of goods sold. It is strictly a measure of all of the revenue that the company brought in for the quarter or year.
So, if nothing gets deducted from gross revenue, then why do you need to know what it is? Essentially, shareholders will look at a firm's gross revenue to get a better handle on how much the company is capable of bringing in. In this way, they decide whether or not to invest in that company. If it looks like revenue has stalled for the year, odds are, that company may not be a safe investment. On the other hand, if gross revenue is robust, investors will be more willing to put their money into a business's stock.
Gross revenue versus net revenue
Net revenue, unlike gross revenue, does take into consideration the cost of goods sold along with other business expenses. So while gross revenue focuses strictly on what comes in without subtracting any expenses, net revenue will deduct what it costs to produce and deliver products along with what it costs to keep the business up and running in general. Net revenue might also be referred to as the bottom line because it stands as the last line on the income statement and consequently shows the company's profits for that reporting period. Taken together, gross and net revenue can demonstrate how well a company is performing in terms of straight profits and expenses. And actually, it is almost always better to look at the two figures together to more fully grasp where a company's financial health stands.
Figure out the length of time
Your gross revenue calculation should occur over a pre-determined period, be that the quarter, month, or year for example. So you first start by establishing over what span you want to calculate it.
Look at all relevant income sources
In-store sales are not the only means you have of generating income. Look also at online sales for instance. Also, does your company have any other income streams that it needs to factor into gross revenue? How about any interest from investments you might have?
Finally, add all income sources
Calculating it is that simple. It is a matter of taking all relevant income sources and adding the amounts. Once you have done that when you arrive at the business's gross income for that particular period.
Some tips when calculating GR
- Who needs to know: In other words when you do sit down to calculate the company's gross revenue, what is the purpose? Who will be seeing this number and why? If for example, it is a yearly calculation for shareholders who consequently want to learn something about your earning potential, then this is important to keep in mind.
- How will you present it: You can certainly present gross revenue on its own, as a stand-alone number, but it makes more sense to show it in tandem with net revenue, as previously mentioned. You might also show the costs of goods sold. Shareholders can then use these numbers to see margin wise, where profit stands.
- Include all income: Don't overlook key income sources. Again, this is in-store sales, but also any online sales, any investment money, and any other revenue stream that the company may have.
- Tracking your gross gr: Consistency as with anything is key here. You want to stay on top of tracking gross revenue regularly—this ultimately helps you to see growth patterns and consequently where/when adjustments need to be made.
GR on the income statement
Gross revenue can be found most often as the top line of the income statement (sometimes it is referred to as the top line/). The expenses then that need to come out of gross revenue to arrive at net revenue are listed below until you get to the bottom line which represents the net revenue. Such expenses will consist largely of the cost of goods sold as well as operating expenses and other standard business expenses.
Often people confuse gross revenue with gross profit. Gross profit is similar to net revenue in that it starts with gross revenue and then subtracts the cost of goods sold; net revenue however deducts all relevant business expenses.
Because gr does not deduct anything at all from the amount of money a company brings in, this number will never be negative. By the same token, net revenue can be negative if the company is spending more on producing the goods and operating the business than it is bringing in through income. Again, it is crucial to look at both numbers—gross and net revenue—in tandem and in this way come to an understanding of where your company is financially and what it needs to do moving forward.
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