Net Revenue Definition
Usually, net revenue is the last number on the profit and loss statement, which is the line that provides business owners with important information about how much money is left after paying the company’s expenses. Therefore, it is a critical measure of business profitability. Net revenue can also be called net income, net profit, or just profit in regular conversation. Although essential, it is relatively easy to calculate using simple accounting procedures that subtract expenses from revenue.
This is the residual amount after all costs and expenses, including operating expenses, interest, taxes, and preference dividends, are deducted from your total revenue because it reflects total sales with only direct sales-related expenses deducted.
The net revenue is recorded in the company’s income statement. It is considered one of the leading indicators of the success or failure of operating the company’s business during a specific period. Shareholders consider net revenue a source of compensation. If the company is not able to make enough profit to compensate the shareholders, the value of the shares will decrease. And vice versa, if the company were to grow and develop, the share price would be higher, which would lead to increased revenue.
Net revenue is not a measure of how much money a company has earned during a particular period. This is because the revenue statement includes a lot of non-cash expenses like depreciation and amortization. To find out how much money the company is generating, the cash flow statement must be reviewed. In general, when a company’s net revenue is low, this can be put off by a myriad of problems, ranging from low sales to dissatisfied customers to inadequate expense management.
If we can formulate net revenues as being a mathematical equation, it will be as follows:
Net Revenue = Revenue – (Cost of Goods Sold + Operating Expenses + General and Administrative Expenses + Benefits + Taxes).