Company results are often summarised using revenue, profit and cash flow. These measures are related, but they are not interchangeable. Revenue describes sales generated, profit reflects income after recognised costs, and cash flow records cash moving into and out of the business.
Revenue measures sales activity
Revenue is generally the amount earned from selling goods or services during a reporting period, before expenses are deducted. It can grow because a company sells more units, raises prices, adds customers or changes its product mix. Revenue growth alone does not show whether the business is becoming more profitable.
Profit depends on recognised costs,A company may report gross profit, operating profit and net profit. Each measure deducts a different set of costs. Net profit includes items such as interest and tax, while operating profit focuses more closely on the result from ordinary operations. Readers should check the definition and accounting period used.
Cash flow shows cash movement
Cash flow statements separate operating, investing and financing activities. A profitable company can have weak operating cash flow if customers have not yet paid invoices or inventory has increased. Conversely, cash may rise temporarily because a company borrows money or sells an asset.
Read all three together,Revenue, profit and operating cash flow provide different perspectives on business performance. Notes to the accounts, one-off items, working-capital changes and comparison with earlier periods help explain the numbers.
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