Difference Between Cash Flow and Revenue

Cash flow and revenue are terms used in finances and in business firms to indicate the profit and loss faced by them. They are the indirect values that show any business’s growth and a possible rise in the industry.

It is a necessity to keep a tab of all the cash flow that a business sees to make sure that the company is having proper growth.

Cash Flow vs Revenue

The main difference between cash flow and revenue is that while cash is is the amount an entrepreneur plows into a business, revenue is the amount of cash that is obtained from a business as income. It is a necessary task to make sure that the cash flow is always kept positive to ensure the proper growth of the company. Only then would any substantial changes be seen in the revenue.

Cash Flow vs Revenue

Cash flow is the primary value or cash amount that a business owner adds to their business so that new products could be made or more services could be made available for customers thereby increasing the profit value of the owners. Cash flow can never be stopped without the consent of the owner as it is the only thing that keeps a business open.

Revenue is the eventual income obtained by any business owner after they start receiving an amount as their profit. Revenue always depends on the cash flow. The greater the cash flow into the business, the higher would be the revenue that the owner can get from the business. Having a loss in business would mean a drop in the revenue collected by the owner.

Comparison Table Between Cash Flow and Revenue

Parameters of ComparisonCash FlowRevenue
Always a Positive ValueYesNo
Financial StatementInput in a businessIncome from a business
Does One Depend on The OtherNoYes
Different TypesMany typesOnly 2
High Value Indicate Good Growth In BusinessNot necessarilyYes

What is Cash Flow?

The total amount of cash or any such assets that are used to increase the business or the financial statement of a business is called the cash flow.

All of the money that is regarded as a part of cash flow is diverted to the business to boost the output in the form of products or other sales.

Cash flow is what gives a business firm its life as it generates all kinds of income and the eventual money that it produces.

It is always a necessity to maintain a positive cash flow so that the business doesn’t see a downfall in the eventual course of time.

A positive cash flow increases the assets of the company or the shareholders in many folds.

Such an increase in assets is in turn an additional increase in the company’s holdings and profits.

These assets might prove instrumental in helping pay off debts that might have occurred during the growth of the company.

Such assets could also be reinvested in the company itself thereby increasing its share market value as well as increasing the value of the shareholders.

These assets could also be used as a cushion in cases of extra debts and financial issues that the company might face.

The rise of the company through its cash flow is measured in terms of many other values.

One of those is operating cash flow which is the total amount of money that the company gains from its sales and services.

The next calculating value is the investing cash flow which is the amount of money the company gains from investments.

The final value is the financial cash flow with is the average value used as open funds to the company.

What is Revenue?

The amount that the business unit receives as its profit that could be used to pay employees and buy more equipment is called revenue.

Revenue can only include the monetary value gained through the primary proceedings of the business.

This means through what the company sells or the services they pledge to provide. It cannot include money earned through the investments of the company.

Other activities that form a sideline business for the major business are also not counted under the revenue as it is not a part of the main income source or the parent income source.

The revenue is not the full amount of money that is the return value of sales of goods and services.

It is obtained after deducting the costs needed for the payment of employees and the cost of purchase of raw materials, etc.

All the additional costs incurred by the company are paid off by the company through the revenue.

The leftover is the actual profit gained by the business firm.

It is not always necessary that the revenue of the company must be a positive value as there might be occurrences where the company might go into small losses.

At such times, the company might have to take care of the additional expenses from their pockets.

A positive revenue at all times shows that the company is having major growth and has seen only profits for a long time.

There are two types of revenues that are seen in most of the business units or small start-up companies.

One of them is the operating income. This is the money gained as profit from the company’s business alone and not from its any other sidechains or other investments.

Another revenue is the non-operating income. This is seen as the secondary income as it isn’t the money obtained through the sale of a share or of any asset that is linked to the company.

Main Differences Between Cash Flow and Revenue

  1. While cash flow is always a positive value because if it is negative, there can’t be any business firm running underneath that, revenue could either be positive or a negative value.
  2. Cash flow is an input statement that means it is the amount in financial terms needed to support a business whereas revenue is the income statement that shows the income of the firm alone.
  3. It is not a necessity that cash flow should depend on the revenue, but revenue in many ways is directly linked to the cash flow.
  4. Cash flow could be in many different forms such as money, assets, investments, etc, but revenue is more often than not just in cash.
  5. A high revenue indicates that the business is doing great but a high cash flow alone can’t decide how good a business is doing.

Conclusion

Both cash flow and revenue are at first glance just financial terms used in business to indicate the monetary value received and the amount that has been added to the company.

It is common to have a high cash flow as well as a high revenue for a business unit.

But to have a high cash flow alone means that the company is yet to bring itself up in terms of sales.

A greater revenue is a great sign that the company is doing good irrespective of the cash flow.

Such monetary values always determine a company’s stand in the market and whether or not it can survive in the field.

References

  1. https://www.sciencedirect.com/science/article/pii/0304393295012230
  2. https://www.degruyter.com/document/doi/10.1525/9780520909540/html
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