The previous post was about TR = TE. From TR I now go to revenues, sometimes called the sales revenues. The TR = TE equation and income statement are related. But the income statement is more popular to get an understanding of how well a business or organisation can generated revenues for growth. Without revenues, no growth. More revenues than expenses results in profit thus the potential to grow the company.
In business the ability to generate more revenues than expenses is called profitability. This ability is vital for businesses, big and small to survive and grow. Even sole proprietors and independent professionals have to think this way. Life comes at the cost of adapting to markets and economies. Growth brings wealth to who benefits from it.
If you think this topic is not interesting or not important I disagree. In life you want to get more out of what you do than the effort you put in. Because when you keep exhausting yourself you at one point fall down to not get up again. You have goals in life right? To waste time and energy at things you cannot make a (sustainable) success leads to failures. When you become good at something you can make a living out of it. I think about my future too and I am 27 now. To think ahead is important.
Revenues = price unit * quantity units sold
It starts simple.
Sales revenues ( price unit * quantity sold)
Sales expenses (expenses directly made for the sales)
Sales revenues – sales expenses = gross result (profit, loss, break-even)
Gross result – other operational expenses = net result (profit, loss, break-even)
Net result – taxes = earnings after taxes
Income statements can be simple but also complex and comprehensive. Look at annual reports from Unilever or P&G for instance and the numbers and terms become dazzling. Per country the rules and regulations for financial reports and their statements can vary. What remains though is the core message of this financial statement: how good you are at generating revenues.
When you realise the importance of the income statement, profitability and R.O.I. you look at companies with a different perspective. You think differently about certain life opportunities, especially if you want to make your own work, creation or start your own company.
Financial statements also tell a story. Some stories are about success, some about failure…