Transcript:
we're goodLet's talk revenue, and
how that word can bevery, very deceiving.I'm Clay, let me explain.(dramatic music)Quick disclosure up front,
I'm not an accountant,I'm not a CPA so if you're one
of those and you're watchingthis I'm probably gonna drive you insane,but my goal here remember
with this segment is to justoffer up basic, ground
level knowledge on thingsthat people can then build from.So yes, I realize that these
terms I'm probably missingall the nooks and crannies
but that's not the idea here.The idea here is just to
convey the broad conceptthat people like I said
can build knowledge from.So, revenue, what is it,
how can it be deceiving?Well, let's just start
with the what real quick.So revenue if you've heard
the term is just money.What kind of money?Well, the kind of money that
a business brings in, right?So a businessthat's probably the worst,
those are supposed to besome skyscrapers, okay?So that is what a business is bringing in.That is their revenue, their
sales, whatever their product,their services, whatever they're
getting, that is revenue.If you set up a lemonade
stand and somebody gives youa dollar for that glass of
lemonade, that dollar isyour revenue as a lemonade stand company.So that's what revenue is.But a lot of people say all
right, well, that's how muchmoney you make.Well, that's when things
get a little sketchy.That's when things get a little deceiving.So what do I mean by
how much money you make?Because yeah, you do make
money, if you give me a dollar,yeah I made a dollar in the
sense of I now have a dollarto put into my wallet, but
there's other numbers out therethat you need to pay attention
to, and that really actuallymatter and in the world of
business and just numbersin general, the other term
that needs to be focusedon is your expenses.And that is also money, but
the expenses relate to this,meaning how much did it cost
to actually generate that?Right, so let's go with
the lemonade thing.You had to actually buy the lemonade.Expense.You had to buy, we'll just
say it, the stereotypicallike wooden stand.You had to buy the wood
to build the stand.Expense.You had to buy the cup
that you would serve it in.Expense.So for all of this, if you
spent, let's just say $ .95to sell a cup of lemonade
that you got a dollar for,did you actually make a dollar?Well, of course not.You didn't make that at all.Now here is how the numbers,
and I want to go witha little bit bigger numbers here,but let's say a company's
like wow, this company made,that marker's kinda shot,so some company made, I
dunno, let's just call it50 million dollars and
this is the revenue.I mean, wow, that's a lot of money.50 million dollars in
sales and all of that,the business was able to
generate, that's a lot.But, what happens if I said, well yeah,the expenses, so the expenses
over here, were 55 million.So the question becomes
did the company actuallymake 50 million dollars?Well, no, they actually
lost five million dollars.How so?How does that math work?Well, nothing fancy here,
you always want to takerevenue minus expenses
and then that's gonna giveyou what would be known as your profit.And your profit is what a
business makes or loses, okay?So in this situation, revenue
of 50 minus expense of 55,that's a negative number,
and when you have a negativenumber in accounting and all that,that means you lost money.So that is why on the surface,
for when a company is sayingyay our revenue is 50 million
dollars, it's, you gotta goa little bit deeper than that.You have to understand just
how much expenses it tookto generate that.Now, this is also where,
maybe for it of you gotta workon your profit margin.What is a profit margin?Well, a profit margin is,
well let's just say thatthe company, let's change this to expensesof 40.So again, 50 right here
minus 40 equals what, 10?10 of profit, or 10
million dollars in profit.What they literally made.So for that profit margin,
that's telling you that theyactually have a margin there
where there is a way to,there's some wiggle room,
because they are spending moneyto make money sure, but the
money that they're spending,is not as a much, so
there is a margin in therefor them to make money.And that's what the term
profit margin means is,profit margin is just referring towhat is the relationship
between these two numbers,The higher the profit margin, the better.So that is what you want to focus on.If you're operating at like
a two percent profit margin,that's not very good.If a company is operating
and taking it to the extremeat a 90% profit margin,that is extremely, extremely excellent.But that's all kind of,
I don't wanna get too farinto the weeds because the
main thing here is just makingsure that you truly understand
what revenue is and whyit can be a little bit
deceiving and the questionneeds to always be, so if you
want to impress your friends,oh did you hear about this
company they did such and suchmillion dollars in sales, in revenue?Well, what were their
expenses associated with that?Because from that, now you
can start to work your waydown to that profit margin discussion,but a company that makes
a whole bunch of moneybut has to spend even
more money to make that,that's definitely some
gray territory thereand in some situations
that's how companiesare gonna go bankrupt.Yeah, sure they're makin'
sales, but their expenses arejust way too much relative to those sales.So, that is what revenue isand why it can be very, very deceiving.So keep that in mind, whether
you're looking into to investin stocks or just general
knowledge or what have you,you can't only look at
how much sales there are,because there's a lot of
other numbers that go into itbut the main number just
boils down to those expenses.So keep that all in mind.First off, thanks so much for
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