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What is net revenue? A Detailed Review

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what is net revenue

Net revenue is important in assessing a business’s financial performance which is why business owners need to pay keen attention to it. So what is net revenue? What is the formula for calculating net revenue? The answers will be revealed in detail here! 

What is net revenue? Meaning of net revenue 

Let’s learn about the concept of net revenue and the meaning of this index for businesses below: 

What is net revenue? 

Net revenue, also known as net sales or net income, is the actual profit of a business after deducting any discounts, returns, and allowances from gross revenue. These deductions can be import and export taxes, special consumption taxes, returned sales revenue, sales discounts or trade discounts. It represents the amount of money a company retains from its sales after accounting for all expenses directly related to generating those sales.

The meaning of real revenue for businesses 

Real revenue is important to an enterprise’s business operations. Specifically, accurately determining real revenue will bring the following benefits: 

Measure and evaluate business results 

Evaluating business results based on real revenue sources is one of the most accurate ways to measure the level of business development. 

The higher the real revenue, the greater the growth of the business. In case deductions are larger than total revenue, real revenue will reach negative levels and vice versa. 

Develop a future business plan 

For business operations to develop sustainably, businesses need to have clear and accurate business strategies. And establishing business plans needs to be based on this revenue index. 

Therefore, if the company is in the early stages of development and the real revenue index is not negative, it proves that the business plan is correct. On the contrary, if the real revenue level is negative when the business has been operating for a long time, it is necessary to consider, adjust the plan and optimize operating costs

Distinguish net revenue from revenue and profit 

In addition to understanding what the concept of net revenue is, you also need to distinguish real revenue from revenue and profit. As follows: 

Net sales and revenue

What is revenue? Revenue is the total value obtained through the activities of selling goods, products, and services of an organization or individual. 

The similarity between revenue and real revenue is the business results of the business. However, the difference between revenue and real revenue is that revenue is the total value obtained, not deductions like real revenue. 

In financial statements, in addition to real revenue, it also includes net revenue. With each different type of revenue, business owners will accurately assess the business situation of the business.

Revenue = (Total value of products sold/number of people experiencing the service * Unit price of product/service) + Other surcharges.

Real revenue and profit 

Profit is the final asset that a business will receive after deducting all costs. Profit is formed based on the difference between the amount of revenue and expenditure during the business operation of the enterprise. 

Real revenue and profit are not the same. High real revenue does not mean high profits. 

Note, the final profit that businesses are interested in is profit after tax. Before determining profit after tax, businesses need to calculate profit before tax, specifically: 

Profit before tax = Net revenue – Cost of goods sold – Selling expenses – Business management expenses.

Profit after tax = Profit before tax – Corporate income tax amount payable in the period.

How to calculate real revenue accurately 

After understanding what the concept of net revenue is, let’s learn the calculation formula. The way to calculate real revenue is quite simple, specifically: 

Net revenue = Total revenue – Sales discounts – Sales returns – Sales discounts 

Or the following general formula: 

Net revenue = Overall revenue (Revenue from sales and service provision) – Revenue deductions 

Example: 

Company A’s revenue is 500,000 USD/year in 2023. In this year, the company implemented a direct commercial discount policy on customer invoices of 10% and returned goods of 30,000 USD. 

Thus, Net Revenue = Overall Revenue (Sales and service provision revenue) – Revenue deductions = 500,000 – 10% * 500,000 – 30,000 = 420 USD. 

Factors affecting net revenue 

What are the factors that affect real revenue and business results of a business? Let’s learn about the factors that affect this index below: 

Cost: 

Price and revenue are proportional to each other. When product and service prices increase, other factors remaining unchanged will lead to increased sales revenue and vice versa. Price is also a factor that governs customer buying behavior. When the price decreases, the quantity of product consumed increases and vice versa. 

Quality of consumer services and products: 

Design and style are considered factors to evaluate the quality of consumer services. Service quality affects the price of goods, thereby the ability to consume and real revenue also changes.

Consumption volume and product production: 

When purchasing demand is large, the number of products increases, leading to increased revenue and vice versa. 

Sales policy: 

Good sales and customer care policies will attract and retain consumers. Since then, product consumption has increased, leading to increased revenue. 

Consumer market: 

High demand for products and services leads to the development and growth of sales revenue. 

Conclusion:

We have introduced to readers the knowledge of what net revenue is  as well as the formula for calculating the net sales. Hopefully it will be useful and help you gain knowledge and apply it to your business!

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Exploring the World of Mobile Houses: Advantages and Disadvantages

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Mobile Houses

Mobile houses are also called integrated houses or detachable houses. Mobile house is a new type of building. It is a living room that can be easily assembled and moved. For example, it can be towed behind a car. It has the function of looking like a trailer and being a living room inside.

Versatile Applications of Integrated Houses in Various Sectors

At present, integrated houses in my country are mostly used for temporary offices, dormitories, transportation, water conservancy, oil, natural gas and other large-scale field exploration and field operations at construction sites; temporary housing for large-scale sports activities, exhibitions, etc.; leisure villas and holiday homes in tourist areas ; post-disaster turnover housing and military areas; various clubs and low-rise residential buildings, etc. 

Future Of Mobile Houses

According to its application fields and product characteristics, integrated houses can be divided into two categories: mobile houses and integrated residences. The emergence of integrated houses is a revolutionary leap in architectural design concepts. It is conceivable that in the future, construction sites will no longer be filled with dust and roaring machines. The process of building a house is just to place factory-made building modules in a prefabricated structure like building blocks. This will bring huge changes to the construction industry.

Advantages of mobile homes

Cheaper in Cost:

A mobile home or prefabricated home is a type of prefabricated housing that can be hauled from a manufacturing plant to a residential base. Today, most mobile homes are used as permanent homes in a fixed location. Due to year-round manufacturing and the use of mass production techniques, such homes are relatively cheap to build.

Features:

Large mobile homes may contain more than seven rooms. Most mobile homes are sold with carpet, drapes, and appliances included. These homes are usually towed from one place to another by moving companies. Many countries impose width restrictions on vehicles traveling on public roads. Therefore, some mobile homes have sliding or folding side walls to reduce the width of the home when transported; other homes are transported in parts and then assembled after arriving at the homestead.

Placement Options:

Traditionally, mobile homes are placed on leased plots in mobile home parks, where water, electricity, postal services and other services are all available. However, there are now many mobile homes placed on individual lots. These homes can be installed on a permanent foundation or anchored to the ground with cables or steel straps.

Sustainability:

The mobile integrated house has the advantages of high protection, long service life, and can be reused many times. Moreover, its price is much lower than that of ordinary houses. Its assembly period is very short, and it usually takes a skilled person one or two days. In a short period of time, an integrated house can be built, which can also be equipped with water, electricity and gas. It does not produce a large amount of construction waste during the assembly process, and as long as the components are not damaged when folded and assembled, it can be recycled multiple times. There are so many mobile homes, and it can be predicted that they will become a new type of housing to replace traditional housing in the future.

Disadvantages Of Mobile Homes

Inadequate Insulation:

Poor heat insulation. The thermal insulation effect is not good. It’s cold in winter and hot in summer.

Sound Insulation:

The sound insulation effect is poor, making it difficult to have a quiet environment.

low durability:

Prefabricated houses have low durability and are easily damaged. Prefabricated houses are temporary buildings that the homeowner needs to use as temporary office space, accommodation, and front room.

Insights from Legal Experts on Mobile Home Living

According to American legal professionals, residing in cities with robust rental laws is crucial for mobile home owners. These laws serve to prevent landowners from arbitrarily increasing rents, thereby alleviating the financial burden on residents and ensuring a more sustainable living situation. In areas where legal protections are strong and landowners are cooperative, mobile homes represent a viable housing solution, particularly for low-income families. By providing affordable and stable accommodation options, mobile homes contribute to improving the quality of life for individuals and families facing economic challenges.

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What is the Net Fixed Assets Formula?

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Fixed Assets Formula

Fixed assets are a specific section of the balance sheet. This is an essential concept in terms of financial analysis since it will make it possible to determine numerous ratios and indicators, including working capital. We will answer the questions: what are fixed assets? How to calculate it? What is its use?

What are fixed assets?

Fixed assets include all assets intended to be kept in the long term by a company and which will generate future economic benefits in return. They can take one of the following types:

  • Tangible fixed asset: non-monetary asset having a physical substance such as industrial equipment, tools, transport equipment, furniture, installations and fixtures;
  • Intangible fixed asset: non-monetary asset without physical substance. This mainly concerns goodwill, lease rights, research and development costs, software, websites, trademarks and patents;
  • Financial fixed asset: monetary asset representing a financial participation ( shares, bonds ), a loan (staff loan, loan to related entities) or a security deposit.

Unlike circulating assets, fixed assets are not destroyed by exploitation upon first use. Its loss of value (due to its use or technical obsolescence) is noted through amortization and depreciation.

Fixed assets must be financed by permanent capital. This is an important point for ensuring the financial balance of a company’s financing structure.

How to calculate fixed assets?

The gross fixed assets of a company are made up of the sum of the input values ​​of each asset making up its assets (we speak of acquisition cost). It is calculated from the balance sheet.

Gross fixed assets = tangible assets + intangible assets + financial assets

The fixed asset can also be calculated for its net amount, in order to take into account the use of depreciable goods and their wear or obsolescence.

Net fixed assets = gross fixed assets – depreciation of tangible and intangible assets – depreciation of fixed assets

What is the use of the fixed asset?

Fixed assets are a concept that must be put into perspective taking into account the type of activity carried out. Indeed, in production companies, fixed assets represent a significant part of total assets whereas in service companies (IT service providers for example), they will not be significant. Furthermore, in holding companies, the item of financial assets will occupy an important place.

The usefulness of calculating a fixed asset lies elsewhere, and more particularly in determining the overall net working capital. It represents an intermediate step in the calculation of this essential financial indicator highlighting the balance (or not) of the financial structure of a company. In summary, it will be necessary to ensure that the fixed assets are financed at least by permanent capital (we are talking about sustainable resources) such as capital contributions, reserves, medium and long-term bank loans. The surplus eventually generated will make it possible to finance the working capital requirement  then the net cash flow.

Financial ratios calculated with fixed assets

Finally, fixed assets are data used in many financial ratios called structural ratios. Here are the main ones.

  • Wear rate  = net fixed assets / gross fixed assets

This ratio measures the degree of wear of the company’s industrial tools. The closer it is to 1, the more recent it is. Conversely, the closer it gets to 0, the older the productive system becomes. This allows us to give an indication of the horizon for their renewal.

  • Financing of fixed assets = permanent capital / (gross fixed assets – depreciation)

This ratio highlights the rate of coverage of fixed assets by the sustainable resources available to the company. It should be at least equal to 1. This concept is close to that of working capital and makes it possible to check the financial balance of investments.

  • Capital intensity  = tangible, intangible or financial assets / total assets

This ratio provides information on the importance of the “fixed assets” item in the balance sheet. As we mentioned above, the results must be nuanced and handled with caution since their consistency with the standard depends on the type of activity carried out by the company.

Example of fixed asset calculation

Consider the following balance sheet:

Active Raw To Depreciate Net Passive
Tangible assets 20,000 10,000 10,000 Capital
Intangible assets 10,000 1,000 9,000 Reserves
Financial assets 5,000 0 5,000 Financial debts
Stocks 15,000 0 15,000 Payables
Receivables 80,000 30,000 50,000 Tax debts
Availability 50,000 0 50,000 Social debts
Total 139,000 139,000 Total

Gross fixed assets are the total value of all fixed assets before depreciation or adjustments. In this case, the gross fixed assets would be the sum of the raw values of tangible assets, intangible assets, and financial assets:

Gross Fixed Assets = Tangible assets (Raw) + Intangible assets (Raw) + Financial assets (Raw)

= $20,000 + $10,000 + $5,000

= $35,000

Net fixed assets are the total value of fixed assets after accounting for depreciation or adjustments. In this case, the net fixed assets would be the sum of the net values of tangible assets, intangible assets, and financial assets:

Net Fixed Assets = Tangible assets (Net) + Intangible assets (Net) + Financial assets (Net)

= $10,000 + $9,000 + $5,000

= $24,000

Conclusion:

Fixed assets are data resulting from the financial analysis of the balance sheet. In particular, it makes it possible to calculate the working capital of a company in order to check whether the financial structure of its investments is healthy and balanced.

FAQs

What are the net fixed assets?

These are, for example, production equipment, computers, furniture, etc. These are materials, equipment, buildings whose value decreases with use.

How to calculate gross fixed assets?

The gross fixed assets of a company are made up of the sum of the input values ​​of each asset making up its assets (we speak of acquisition cost). It is calculated from the balance sheet.

How to calculate the depreciation of fixed assets?

When linear depreciation is used, the depreciation rate is obtained very quickly:

  • Linear depreciation rate = 1 / Actual duration of use (or tax-admissible duration of use)
  • Linear depreciation annuity = (Gross value – Resale value) × Linear depreciation rate.

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What is the difference between revenue and profit?

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What is the difference between revenue and profit?

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difference between revenue and profit

Understand the difference between revenue and profit. Revenue represents the total income generated by a business, while profit denotes the remaining earnings after subtracting all expenses.

Still many people are confused between revenue and profit, so let’s delve into it in detail in the article below to provide answers to all your questions.

What is revenue?

Revenue is also known as income, which is all money collected in the process of buying and selling goods, providing services, and other activities of individuals and organizations. This is also the basis for businesses to make revenue reports.

What is the revenue implication? 

In terms of meaning, revenue is known as income – an important revenue so that every business can pay costs and related expenses during business operations and service provision. For example, office and store rental costs, fees and charges, taxes for state agencies, etc.

This is also an essential amount to help maintain and develop the business in the long term, also known as revolving capital to help promote the process of re-operation or to develop business activities on a larger scale.

What is profit?

Profit is the reward for the risk taken by a businessman to run his business, i.e. it is the return on the investments he makes. It is essential for the growth and long-term survival of every business, in fact, the success of a business depends solely on its ability to make a profit.

Profit can be obtained after deducting some costs such as: Transaction costs, Office and management costs, Sales and distribution costs, Taxes, Interest, Dividends, etc. Below are types of profits:

Gross Profit: The profit achieved after deducting transaction costs from Sales is called Gross Profit.

Net profit: The profit earned after deducting office and management expenses, selling expenses and other expenses from revenue is net profit.

Main difference between revenue and profit

  • Revenue is the amount of money a business receives through various trading activities while Profit is the surplus remaining after reducing all types of costs and expenses.
  • Revenue is necessary to run a business efficiently and effectively. On the other hand, Profit is necessary for the survival and development of a business in the long term.
  • Revenue does not depend on profit in any way, but profit depends on revenue. In other words, the more revenue, the more profit.

An example in the following story so you can understand better:

The following story will help differentiate revenue and profit types:

We are a TV store. We import 10 TVs at a price of 7 million/unit. Then we sell 10 million/unit. At this time:

  • Revenue = 10 TVs x selling price of 10 million = 100 (million)
  • Gross profit = Revenue – cost of imported products = 100 – 10×7 = 30 (million)

To sell a TV, we also have to spend money to open a store, pay sales staff salaries, and taxes. This total cost is 1 million.

Net profit = gross profit – costs (sales, business management costs, taxes) = 30 – 1 million x 10 units = 20 (million)

Is revenue or profit more important?

When people refer to a company’s profits, they are often not referring to the company’s profits or operations, but to its net income. This is the amount a business earns after deducting costs or profits, and a company may generate revenue but may suffer a net loss.

Profits and revenue are both important, profits tell us exactly about the financial situation of a company or business. Because the business’s debts and some expenses have been accounted for by the business when calculating profits.

Revenue and profit are two extremely important numbers, shown on the operating process and business reports of a company or enterprise. Wall revenue is located on the top line of the statement and profit is usually located on the bottom line.

Although these two metrics are both very important when considering investment decisions, revenue is the income a company generates without taking into account other expenses. However, when determining profit, you need to pay attention to the costs that the business makes such as wages, debts, taxes and other expenses.

Thus, although revenue and profit both have big differences, they are closely related to each other. So when you understand the business’s financial statements and the difference between revenue and profits, you can already practice accounting tasks and establish effective budgets.

Conclusion:

  • Revenue is the total revenue earned from sales.
  • Gross profit = Revenue – cost of imported products
  • Net profit = Gross profit – costs related to business management, sales, taxes.

I hope this simple article of mine will help people read and understand the business at a glance, take the first steps to better understand the business and feel more secure in their assets. Wishing everyone to maintain discipline and perseverance.

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What is net revenue? A Detailed Review

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