Gross Revenue Description and Key Issues

Gross Revenue Description and Key IssuesGross Revenue Description and Key IssuesA businesss gross revenue is the money generated by all itsoperations before deductions are taken for expenses. Revenue can come from the sale of the companys products or services, from the sale of surplus equipment or property, or from the sale of shares of stock in the company. It can come from a variety of other sources (both large and small) including such things asinterest, royalties, and fees. In its simplest term, all the revenue of a business from all of its sources is added together to compute gross revenue. Gross revenue is generally referred to for a specific period of time, such as the gross revenue for the quarter or the gross revenue for the year. The Distinction Between ausverkauf and Gross Revenue Itsimportant to distinguish between gross revenue and the actual sales number inorganizations- especially when there are multiple sources of revenue such as sales, interest, and other procee ds. The sales number isall proceeds from customers for the provision of goods and services, less any sales-related expenses. This isoften referred to asnet revenue or operating revenue.Gross revenue references the total amount of the sales contract, while net revenue reflects the amount billed to the customer at that point in time. Analysis of Sales Numbers Itsimportant to identify the number that reflects the actual sales generated through the provision of goods and services for all comparison periods when you are evaluating company performance and comparing it to prior periods. Net revenue or operating revenue is useful for assessing trends and various measures and ratiosof the efficiency of the companys sales and marketing efforts. Some ratios incorporate gross revenues as well. A number offrequently referenced financial metrics that incorporate revenue totals include Sales growthThe compound annual growth rate in sales (CAGR)Gross and net profit marginsSelling, general and administrative (SGA) expenses to salesOperating expense ratiosAccounts receivable turnoverTotal asset turnoverFixed asset turnover These and other ratios that incorporate revenue numbers are carefully scrutinized by a firms management, as well as by external analysts, in order to gauge the overall health of a firms revenue generation activities. Pay Attention to Revenue Recognition Rules Recognized revenue is the amount of revenue thats allowed to be recognized in the current period as governed by generally accepted accounting principles. For businesses that rely on long-term contracts (or in software subscription or software license maintenance models), the true picture of health is the amount of revenue that is able to be recognized in that period. For example, an organization may contract for a sale with a value of $3 1000000 over three years, butit is only allowed to recognize that revenue in one-year chunks of $1 million.A software license might call for a maintenance fee o f $30,000 over three years, butthe firm can only recognize the revenue in one-year chunks, one month at a time. Ifthe maintenance agreement is established at the six-month mark in year number one, the firm can only recognize half of the annual amount or 6/12 of the one-year fee of $10,000, or $5,000 for that particular year. If you have any questions whatsoever about these key issues, you should always consult a qualified accountant (preferably one familiar with your business) to determine the proper revenue recognition rules for your business.