Financial terms and calculations - AQABasic financial calculations

Revenue

Revenue is any money that a business makes from selling their products and services, whereas costs are anything that a business pays for. Businesses need revenue to ensure that they can maintain their day to day operations and pay and business costs they have.

Example of revenue for a florist shop:

• selling flowers
• charges for delivering to customers

Examples of revenue for a web designer:

• fee for designing a website
• fee for maintaining or updating a website

Revenue is worked out using a relatively simply calculation:

Revenue = selling price × quantity sold

If a florist sold 482 bouquets of flowers for £10 each, their revenue would be £4,820:

Revenue = £10 × 482 = £4,820

If a web designer charged £256 to design a website and in a year designed 25 websites, their overall revenue would be £6,400:

Revenue = £256 × 25 = £6,400

Profit and Loss

Many businesses measure their success based on how much of a profit or loss they have made. Profit is any revenue left after all business costs have been paid.

Profit is calculated using the following calculation:

Profit = revenue – total costs

Where a business’ costs are higher than the revenue it has made, this calculation gives a negative number, which would be classed as a loss. Businesses would never aim to make a loss, and businesses making consistent losses may eventually fail.

For example if a business has revenue of £50,000 and total costs of £41,000, they will have an overall profit of £9,000:

Profit = £50,000 - £41,000 = £9,000

If a business has a revenue of £30,000 and total costs of £45,000, they will have an overall loss of £15,000:

Profit = £30,000 - £45,000 = -£15,000