What is revenue — and how does it differ from profit?

Every time a FTSE 100 company publishes its results, two figures dominate the headlines: revenue and profit. They are not the same thing — and conflating them is one of the most common mistakes new investors make. This guide unpacks both numbers, explains why a company can post record revenue and still be losing money, and shows you exactly how to read both figures when a company you hold in the Student Investor Challenge announces results.

What is revenue?

Revenue is the total value of all sales a company makes during a period, before any costs are deducted. Every pound that flows in the door from customers counts. Nothing has been taken out yet — no wages, no rent, no tax. It is the raw total of what the business sold.

You will hear revenue called several things. In British English, companies often use turnover; in American English the word is sales. Analysts sometimes call it the top line, because it appears at the very top of the income statement (also known as the profit and loss account, or P&L).

A couple of examples make this concrete:

• A supermarket sells £2 billion of groceries this year. That £2 billion is its revenue — regardless of what it cost to stock the shelves.
• A streaming service has 5 million subscribers each paying £10 a month. Its monthly revenue is £50 million, even if the cost of producing and licensing its shows is £60 million.

Notice the second example: high revenue does not mean the company is making money. Revenue only tells you how much came in the door. What matters next is what survived the journey through costs.

What is profit — and which type matters?

Profit is what remains after costs have been deducted from revenue. But “profit” is not a single number — companies report it at three different stages of the income statement, each stripping out a different layer of costs.

Gross profit

Gross profit is revenue minus the direct cost of making or buying what was sold. That direct cost is called the cost of goods sold (COGS) or cost of sales.

Using the supermarket example: if it buys £1.2 billion of stock and sells it for £2 billion, its gross profit is £0.8 billion. From that, divide gross profit by revenue to get the gross profit margin — here, 40%. That tells you how efficiently the company turns its sales into raw profit before overheads.

Operating profit

Operating profit takes gross profit and deducts the overhead costs of running the business: salaries, rent, marketing, and research and development. It is sometimes called EBIT (earnings before interest and tax).

Operating profit is a useful measure of how well the core business runs, before you add the complication of how the company is financed. Two supermarkets with identical operating profits might end up with very different bottom-line results if one carries a lot of debt — which leads to the third layer.

Net profit (“the bottom line”)

Net profit is what is left after tax, debt interest, and everything else is paid. It sits at the bottom of the income statement — hence the bottom line. This is the figure used to calculate earnings per share (EPS), which divides net profit by the number of shares in issue.

When you hear the phrase profit warning, it usually refers to net profit falling short of expectations — you can read more in our explainer on what a profit warning is and what it does to a share price.

Why can a company report record revenue and still lose money?

This trips up even experienced investors. The answer is simple: costs can outpace sales. Fast-growing companies often invest heavily in staff, technology, and expansion before those investments produce a return. Revenue rises because orders are coming in; but the spending required to win and service those orders is even larger.

Imagine a fictional delivery start-up, SwiftBox. In its first full year it wins £500 million in orders from retailers. Impressive. But it spends £700 million on drivers, vans, warehouses, and marketing to handle those orders. Revenue: £500 million. Net loss: £200 million. The top line is growing fast; the bottom line is deeply negative.

This is not automatically fatal — Amazon ran losses for years while building infrastructure that later generated enormous profits. But it does mean revenue growth alone is not enough to judge a business. Profitability is the test of whether the underlying model actually works. In the Challenge, whenever you see a headline like “revenue rose 40%”, your immediate follow-up question should be: what happened to profit?

How to use both numbers when you read company results

Reading a results announcement is a skill. Here is a simple four-step process to apply when a company you hold announces:

1. Find headline revenue. Is it growing year on year? By how much? Did it beat or miss what analysts expected? A revenue miss often signals that demand is weakening, even if the company tries to reassure investors.
2. Find operating or net profit. Is the margin expanding or shrinking? If revenue grew 10% but net profit grew only 2%, costs are rising faster than sales — a potential warning sign.
3. Check guidance. What do management expect for the rest of the year? A strong set of results paired with a cautious outlook can push a share price down, while modest results with upgraded guidance can lift it. You can learn more about this in our piece on why results announcements move share prices.
4. Calculate the net profit margin. Divide net profit by revenue and multiply by 100. A company earning 5p of profit from every £1 of revenue has a 5% net margin. Tracking this margin over time tells you whether the business is becoming more or less efficient.

As a practical reference, the London Stock Exchange’s investor education pages explain how to find the income statement in a company’s annual report, which is where all three profit figures live alongside revenue.

A quick note on terminology

Company results day produces a blizzard of words that all sound like they mean the same thing. They do not. Here is a cheat sheet:

• Revenue / turnover / sales — all mean the same thing: total income before any costs are deducted. “Turnover” is the British accounting term; “sales” is common in American English.
• Income — in everyday speech this often means profit, but in accounting it can technically mean revenue. Always check the context before assuming.
• Earnings — almost always means profit (hence “earnings per share”, not “revenue per share”).
• The top line — revenue (it sits at the top of the P&L).
• The bottom line — net profit (it sits at the bottom).

All four sets of words appear on results day. Knowing that “turnover rose 8%” and “earnings fell 3%” are two separate facts about the same company — not contradictions — is the kind of fluency that separates confident Challenge participants from confused ones.

Frequently asked questions

Is revenue the same as income?

In everyday speech, yes — but in accounting “income” sometimes means profit. Always check whether a headline means total sales or what was left after costs.

Can a company survive with growing revenue but no profit?

For a while, yes — especially if it is investing heavily in growth and can keep raising money from investors. But eventually every company must turn revenue into profit to be sustainable. The classic example is that a business burning through cash faster than it earns will eventually run out of funding if it cannot turn the corner to profitability.

Where do I find revenue in a results announcement?

It is usually the first headline figure — look for “revenue”, “turnover”, or “sales” near the top of the press release, before costs are mentioned. In the formal accounts it will be the first line of the income statement.

How does understanding revenue help me in the Challenge?

When a company you hold or are researching reports results, check both revenue growth and whether profit margins are expanding or shrinking. A company growing both is usually a stronger pick than one growing revenue while profits slide. Over a Challenge round, businesses with rising revenues and rising margins tend to be more resilient holdings than those where only one figure is heading in the right direction.