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What is Meant by Net Revenue and Why is it Important?

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Net revenue is another one of those terms that can confuse people when they first hear about it. It is hoped that by the end of this article you will have a much better idea about what is actually meant by this term. The term net revenue is closely related to the terms net profit, net income, net earnings, or the bottom line.

So What is Meant by Net Revenue?

The first thing to understand about net revenue is that it is not really the same as profit as a lot of people use the term; although it is often used to mean profit. Net revenue is also called net profit and it refers to a company’s total revenue minus its operating costs, taxes paid, costs of depreciation, and any interest that needs to be paid on loans.

To make things a bit clearer lets use an example. Imagine there is a cake factory that has total revenue of £500,000. Now let us say that company’s overheads are £300,000 and has paid £25,000 in taxes and £10,000 in interest repayments. They have also incurred about 5,000 in depreciation. If we do the calculations here we can see that the net revenue for this company is £160,000.

Why is Net Revenue Important?

It is important for a business to understand net revenue because it shows them the real amount of money their company is making after all the necessary reductions. It is also important information for anybody thinking of investing in the company and anyone trying to put an evaluation on the business. When approaching any lender or trying to sell a company one of the first things that these people will want to know is the net revenue. Anyone who has ever seen the TV show the Dragon’s Den will notice how the dragons get annoyed when aspiring entrepreneurs can’t provide this figure.

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