Chapter 8 — Revenue: Where the money comes in

The first line on the income statement is always total, or gross, revenue. This is the amount of money that came in the door during the period of time in question, which is reported either quarterly or yearly. If we are manufacturing shoes and we sell $120 million worth of shoes in a year, we will report $120 million of total revenue for the year on our yearly income statement.

Now the fact that a company has a lot of revenue doesn’t mean that it is earning a profit. To determine if a company is earning a profit, you need to deduct the expenses of the business from its total revenues. Total revenue minus expenses equals net earnings. But the total revenue number by itself tells us nothing until we subtract the expenses and find out what the net earnings are.

After Warren has taken a peek at the total revenues of a business, he starts a long and careful dig through the expenses. Because Warren knows that one of the great secrets to making more money is spending less money.