Revenues (Sales)
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What is Revenue?
Revenue can be defined as the sum of all sales for goods, services, and other goods of a business. In order to calculate revenue, it is necessary to add up all sales. Profit can be calculated by subtracting all costs, i.e. expenses, from revenue. Revenue is a concept in accounting that measures the speed at which a business operates. In order to calculate revenue, existing receivables and invoices issued to customers are added together. Receivables refer to the claim that a creditor has on a debtor's service (usually financial).
The sales key figures are used to determine how quickly a company collects cash from its receivables and inventory. In fundamental analyses, wealth/asset managers and investors can use these ratios to determine whether a company is a good investment (e.g., return on sales).
Formula for Returns on Sales
This key figure illustrates the relationship between profit and sales. Consequently, it indicates the percentage of profit left over from each franc of sales generated. With an unchanged price of the company's product or service, an increasing return on sales indicates an increase in productivity.
Examples of other Key Sales Figures
Accounts Receivable Turnover Ratio
Accounts receivable turnover can be used to evaluate a company's liquidity. Accounts receivable turnover measures the frequency with which accounts receivable balances are included in revenue.
A company's accounts receivable turnover formula provides information on how quickly it collects payments in comparison to its credit sales. The aim is to maximize sales, minimize accounts receivable balances, and therefore achieve a high level of accounts receivable turnover.
Inventory Turnover Rate
A calculation of the average storage time can be made using the inventory turnover rate. In general, the shorter the average storage time, the higher the inventory turnover. The inventory turnover rate measures the frequency with which inventories are consumed or sold. In order to calculate inventory turnover, the following formula is used:
Imagine a company X with costs of goods sold of CHF 10 million in 2020 and an average inventory of CHF 5 million. In this example, the inventory turnover rate is two, indicating that the company turns over its inventory twice a year.
As of 2020, company Y has an average inventory of CHF 2 million and costs of goods sold of CHF 10 million. In this example, the inventory turnover rate is 5. As a result, company X is considered less profitable than company Y, since company Y is capable of achieving the same turnover with a smaller average inventory.
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