Understanding Revenue and Profit
Listed companies release their financial statements every 6 months. This is the first place most investors look when evaluating a company. Starting with the profit and loss statement and two key figures: Revenue and Profit.
Revenue – The Top Line
Revenue is the total amount of money a company earns from selling its products or services, before any costs are deducted.
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Also called Sales or Turnover.
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Found at the very top of a company’s income statement — hence the term “top line”.
Example:
If a business sells 100,000 shoes at $100 each, revenue = $10 million.
Why It Matters:
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Shows the size and scale of the company.
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Growth in revenue can signal rising demand or market expansion.
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Falling revenue could mean trouble — fewer customers or shrinking market share.
Profit – The Bottom Line
Profit (also called Net Income) is what’s left after the company pays all its costs — including wages, rent, materials, interest, and taxes.
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It appears at the bottom of the income statement — hence “bottom line”.
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It tells you whether the company is actually making money after expenses.
There are a few types of profit you might see:
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Gross Profit – Revenue minus cost of goods sold.
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Operating Profit – Profit from core business activities.
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Net Profit – Final profit after all expenses.
Example:
If that same shoe company has $10 million in revenue but $8 million in expenses, profit = $2 million.
What to Look For
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Is revenue growing year over year?
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Is profit also growing, or are expenses rising too fast?
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Does the company have healthy margins (profit as a % of revenue)?
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How do revenue and profit compare with similar companies in the same industry?
Revenue shows how much money a business brings in. Profit shows how much it keeps. Both are essential indicators of a company’s health. But to know how valuable those profits are to shareholders, we need to go one step further — into Earnings Per Share and the P/E Ratio.