Volume, Realisation, and Revenue Explained
Investors require in-depth knowledge about companies before investing in their shares. This helps them plan their investment strategies in the long run. To do so, it is important to conduct thorough research on certain aspects. Sales volume, realisation and revenue are three such parameters that an investor must know about before investing.
Keep reading till the end to know about volume, realisation and revenues.
What Is Sales Volume and Realisation?
From a company’s point of view, volume is the number of units or products a company sells within a given period. This is also referred to as the sale volume and is a crucial parameter for investors to judge a company’s unit economics.
Within a business, sales volume is determined at different levels. This can be done at a different level of products, product lines, customers, brand subsidiaries and expansions. Each will paint a different picture of the company’s revenue.
Like volume, realisation is an essential parameter for determining a company’s method of earning revenue. The realisation is the earnings per unit of sales volume that the company stands to earn. Analysing the realisation helps investors conduct detailed research on a company before planning to invest.
What Is Revenue?
When talking about businesses and their growth, revenue is a frequently used word. It is a known fact that a business’s growth depends on the revenue that it makes. It is also the key factor that attracts investors. So, what is revenue?
Revenue is the total earnings that a company generates on selling its products or services for a stipulated period. It is calculated as the total income before the deduction of costs, including wages, inventory and taxes. Income from rent and interest are usually excluded from revenue unless it is a part of the firm’s core business.
It helps the company meet its essential requirements and other expenses. This includes paying salaries to employees, offering dividends to investors and paying off debts and taxes. It also helps investors to form a view of a company’s financial standing and forecast their future cash flows. A company’s revenue gives a direct account of its sales and product/service demand.
How is Revenue Inter-Related with Volume and Realisation?
Sales volume, realisation and revenue of a company are intricately related. To evaluate revenue, one must multiply a company’s sales volume by its realisation for a given period. The product is its total revenue. Therefore, investors must not only judge a company solely by its revenue.
The revenue of a particular business is given by this simple formula:
Revenue = Sales volume * Realisation
Examples of Volume, Realisation and Revenue
To understand the terms volume, realisation and revenue well, let’s consider an example of a company called Sugar Cosmetics.
Let us say that Sugar Cosmetics sold 40,000 liquid lipsticks in January 2023 for ₹300 each.
We can state that the sales volume of Sugar cosmetics’ liquid lipstick is 40,000. Whereas the price of each unit is ₹300, this is the brand’s realisation for January.
Now let’s find out the monthly revenue of this brand for January for the product line of liquid lipsticks.
Revenue = ₹(40,000*300)= ₹1,20,000
Importance of Volume, Realisation and Revenue for Investors
Very often investors assess a company’s worth by only analysing its net revenue for a given period. Although net revenue is an important indicator of a company’s financial standing, it does not paint a clear picture.
Revenue is the product of a company’s sales volume and its realisation for a particular product line. By studying these metrics, one can assess if a given company makes its profits by the number of sales or selling price of its products/services. By monitoring volume, realisation and sales, investors can understand the company’s margins and customer demand for a given period.
Professional investors can use these parameters to conduct a comparative analysis of companies within the same industry. This helps one to make an informed decision on which company will offer better returns in the long run.
To conclude, sales volume, realisation and revenue are essential parameters for examining a company’s worth for investors in the long run. If you are new to the stock market, consider taking help from financial experts to study a company’s fundamentals before investing.
Frequently Asked Questions
In what ways can I increase my company’s sales volume?
You can increase the sales volume of a company by considering the following strategies.
Know and focus on your product’s USP
Reward and motivate your sales rep
Stress on customer needs
Reward loyal clients
Nurture your leads
What is the formula to calculate realisation for a company?
The formula to calculate price realisation for a company is:
Realisation = revenue (total sales)/sales volume (quantity sold)
What is the annual revenue of a company?
Annual revenue is the total earning that a company makes before calculating any deductions. As the name suggests annual revenue considers all required data for a period of one year.
What is the difference between a firm’s revenue and profits?
Revenue is the total earning that a company makes through its core business like renting properties, selling products and services, recurring payments, interest, borrowing, etc. On the other hand, profits are calculated by deducting expenses from gross sales or revenue.