7 ms·

Revenue is often used as a vanity metric. On the other hand... revenue is tangible, profit is an accounting construct.

by IsaacL 10y ago

grzm 10y ago
Would you elaborate? It seems the pile of money you have after paying expenses is tangible in the same way as the pile of money you receive.
- Retric 10y ago
  In small companies 'profit' vs. the salary you pay yourself is a fuzzy concept. Pamen profitable often means everyone is taking a pay cut, but they are also not going broke.
- mcguire 10y ago
  Revenue is relatively well defined in accounting terms, although it can be fiddled with some, by booking revenue for sales that aren't going to be completed until later (which, specifically, would be illegal). Profit is much easier to adjust in accounting terms, by delaying or advancing liabilities from the future. A common example is, if you are going to post a loss for the quarter, go ahead and throw every possible expense you can on it so that next quarter will look much better. I recommend How to Read a Financial Report by John Tracey. https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_1118735846 https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_111...
- cookiecaper 10y ago
  Revenue is absolute. Money either came in or it didn't. Profit is fungible because the accountants and business principals decide what counts as a cost and what counts as a surplus. An infamous example of this is "Hollywood accounting" [0], whereby major studios spin off independent LLCs for each film project they pursue, charge these LLCs exorbitant fees for marketing, distribution, etc., and then the LLCs never post a profit. As I understand it, such structures have been used on some of the most successful film franchises of all time, including Lord of the Rings and Harry Potter. This tactic is commonly believed to be a mechanism to avoid paying royalties. [0] https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
  - jimmywanger 10y ago
    > Revenue is absolute. Money either came in or it didn't. That's actually quite incorrect. The way you recognize revenue and the timelines over which you recognize them are different. Two example. One is groupon, another is more universally applicable. So for Groupon, if you as a customer pay 10 dollars, groupon gets 5 dollars and the merchant gets 5 dollars. Groupon was recognizing 10 dollars as revenue and five dollars as cost, even though it knew it would have to pay out the 5 dollars immediately. It could have just booked 5 dollars as revenue, but chose to book 10 dollars as revenue and 5 dollars as a cost, because it made its revenue growth more impressive. (https://dealbook.nytimes.com/2011/09/23/groupon-changes-its-revenue-accounting/ https://dealbook.nytimes.com/2011/09/23/groupon-changes-its-...). Another example is recognizing recurring revenue. If you sign a deal for a maintenance contract for 200 bucks over 2 years, you could recognize 25 dollars every quarter, or 200 bucks in the first quarter and none for the rest. In summary, revenue is far from absolute and can be played with like profit.
    - lern_too_spel 10y ago
      You're both right. Revenue growth within a market is absolute for a growth stage company. Profit, revenue, and profit growth are nearly meaningless until the company has stabilized.
  - portent 10y ago
    > Revenue is absolute. Money either came in or it didn't. Sadly nothing is that absolute. Plenty of revenue scandals out there. A typical example of this: a large supermarket hasn't made enough money for the year, and asks its suppliers to book future sales that (very likely) will come next year as real sales now. The suppliers do this, and actually pay up, because they want to stay on good terms with the big supermarket. So the supermarket has the "absolute revenue" now, but has a hidden liability behind it. It's not theoretical: http://www.bbc.co.uk/news/business-37536538 http://www.bbc.co.uk/news/business-37536538 "Auditors found that the inflated profit figure was the result of Tesco booking payments from suppliers before the company had been due the money."
    - 10y ago
- kgwgk 10y ago
  The profit is not the pile of money remaining at the end of the year. Other accounting measures (https://en.m.wikipedia.org/wiki/Cash_flow_statement https://en.m.wikipedia.org/wiki/Cash_flow_statement) are closer to what you're thinking, but are not without issues.
nickpsecurity 10y ago
They're both tangible. Another is costs. Revenue - Costs That Are Absolutely Necessary = Profit in most honest way of doing accounting. Unless it's very inefficient, profit is one of better ways of measuring one's business success. It's what you keep after all. Alternatively, if in a growth stage, it's obviously revenue and customer growth with profit sacrificed for that. Still better to be profitable most of the time.
icedchai 10y ago
Money in the bank is tangible. Revenue and profit are both accounting constructs.
portent 10y ago
Anyone who wants more revenue can get it. Just sell something at a loss. It happens more often than you think! That's why - in the long run - profits matters more than revenue. Of course in a land-grab situation the normal rules of gravity may not apply, but most businesses are not operating in a land-grab.

Revenue is often used as a vanity metric. On the other hand... revenue is tangible, profit is an accounting construct.

by IsaacL 10y ago

Revenue is often used as a vanity metric. On the other hand... revenue is tangible, profit is an accounting construct.

grzm 10y ago

Would you elaborate? It seems the pile of money you have after paying expenses is tangible in the same way as the pile of money you receive.

Retric 10y ago
In small companies 'profit' vs. the salary you pay yourself is a fuzzy concept. Pamen profitable often means everyone is taking a pay cut, but they are also not going broke.
mcguire 10y ago
Revenue is relatively well defined in accounting terms, although it can be fiddled with some, by booking revenue for sales that aren't going to be completed until later (which, specifically, would be illegal). Profit is much easier to adjust in accounting terms, by delaying or advancing liabilities from the future. A common example is, if you are going to post a loss for the quarter, go ahead and throw every possible expense you can on it so that next quarter will look much better. I recommend How to Read a Financial Report by John Tracey. https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_1118735846 https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_111...
cookiecaper 10y ago
Revenue is absolute. Money either came in or it didn't. Profit is fungible because the accountants and business principals decide what counts as a cost and what counts as a surplus. An infamous example of this is "Hollywood accounting" [0], whereby major studios spin off independent LLCs for each film project they pursue, charge these LLCs exorbitant fees for marketing, distribution, etc., and then the LLCs never post a profit. As I understand it, such structures have been used on some of the most successful film franchises of all time, including Lord of the Rings and Harry Potter. This tactic is commonly believed to be a mechanism to avoid paying royalties. [0] https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
- jimmywanger 10y ago
  > Revenue is absolute. Money either came in or it didn't. That's actually quite incorrect. The way you recognize revenue and the timelines over which you recognize them are different. Two example. One is groupon, another is more universally applicable. So for Groupon, if you as a customer pay 10 dollars, groupon gets 5 dollars and the merchant gets 5 dollars. Groupon was recognizing 10 dollars as revenue and five dollars as cost, even though it knew it would have to pay out the 5 dollars immediately. It could have just booked 5 dollars as revenue, but chose to book 10 dollars as revenue and 5 dollars as a cost, because it made its revenue growth more impressive. (https://dealbook.nytimes.com/2011/09/23/groupon-changes-its-revenue-accounting/ https://dealbook.nytimes.com/2011/09/23/groupon-changes-its-...). Another example is recognizing recurring revenue. If you sign a deal for a maintenance contract for 200 bucks over 2 years, you could recognize 25 dollars every quarter, or 200 bucks in the first quarter and none for the rest. In summary, revenue is far from absolute and can be played with like profit.
  - lern_too_spel 10y ago
    You're both right. Revenue growth within a market is absolute for a growth stage company. Profit, revenue, and profit growth are nearly meaningless until the company has stabilized.
- portent 10y ago
  > Revenue is absolute. Money either came in or it didn't. Sadly nothing is that absolute. Plenty of revenue scandals out there. A typical example of this: a large supermarket hasn't made enough money for the year, and asks its suppliers to book future sales that (very likely) will come next year as real sales now. The suppliers do this, and actually pay up, because they want to stay on good terms with the big supermarket. So the supermarket has the "absolute revenue" now, but has a hidden liability behind it. It's not theoretical: http://www.bbc.co.uk/news/business-37536538 http://www.bbc.co.uk/news/business-37536538 "Auditors found that the inflated profit figure was the result of Tesco booking payments from suppliers before the company had been due the money."
  - 10y ago
kgwgk 10y ago
The profit is not the pile of money remaining at the end of the year. Other accounting measures (https://en.m.wikipedia.org/wiki/Cash_flow_statement https://en.m.wikipedia.org/wiki/Cash_flow_statement) are closer to what you're thinking, but are not without issues.

nickpsecurity 10y ago

They're both tangible. Another is costs. Revenue - Costs That Are Absolutely Necessary = Profit in most honest way of doing accounting. Unless it's very inefficient, profit is one of better ways of measuring one's business success. It's what you keep after all. Alternatively, if in a growth stage, it's obviously revenue and customer growth with profit sacrificed for that. Still better to be profitable most of the time.

icedchai 10y ago

Money in the bank is tangible. Revenue and profit are both accounting constructs.

portent 10y ago

Anyone who wants more revenue can get it. Just sell something at a loss. It happens more often than you think! That's why - in the long run - profits matters more than revenue. Of course in a land-grab situation the normal rules of gravity may not apply, but most businesses are not operating in a land-grab.