Lesson 01 of 04
Revenue is not profit
The income statement covers a stretch of time. Sales come in at the top. Profit is what survives the costs.
Keep these
- Revenue, profit, and cash are three different ideas.
- Expenses include the cost of running the business, not only the cost of goods.
- One strong year is a period, not a personality.
The lesson
Read an income statement from top to bottom and from a date to a date. Revenue is what the company recorded as sales in that window. Subtract the cost of producing those sales, then the costs of operating, borrowing, and tax, and you arrive at profit — net income — if the arithmetic goes that way. Many companies report a loss. The statement is allowed to end in red.
Profit is an accounting result. Cash can move on a different schedule: customers pay late, the company buys equipment, or management records revenue before the cash arrives. A profitable year can still be a year the bank balance fell.
People say “earnings” for that profit, then divide by shares to get earnings per share. The next lessons use that per-share figure. Hold the caveat: earnings can be helped or hurt by one-time events, and last year’s number is not next year’s contract.