Revenue from operations vs total income: how to read a startup's filed numbers

Indian companies file a statement of profit and loss with the Registrar of Companies. It starts with income at the top and subtracts costs line by line until it reaches the profit or loss at the bottom. Outlets read these filings through data platforms, so the figures are usually from the company's own accounts.

The same filing also carries a balance sheet and a cash flow statement. For a quick read of how a company did in a year, the profit and loss statement is the page to open first, because it answers a plain question: did the company earn more than it spent?

Revenue from operations is money earned from the core business: selling products, charging commissions, collecting subscriptions or delivery fees. It is the cleanest number for judging whether customers pay the company.

Be careful with marketplaces. Some record the full value of goods sold, while others record only their commission. Two companies with the same sales value can show very different revenue from operations for this reason.

A useful habit is to read the notes to the accounts, where companies break revenue into streams such as product sales, services and commissions. The split tells you what the company really sells, which a single headline number hides.

Other income is money that does not come from the main business. Common items are interest on bank deposits, gains on investments and one-off gains such as selling an asset.

A startup that raised a large round holds a lot of cash in deposits, so interest can be a meaningful slice of income. It is real money, but it is not a sign that the product is selling.

Foreign exchange gains, a refund of tax, or a profit from selling a business unit can also appear as other income. When other income is large compared with operating revenue, the year's result may owe more to side items than to the business itself.

Interest income also tells you something else: how long the cash may last. A company with a large cash pile earns more interest, which can make a small loss look smaller than the business really is.

Total income is revenue from operations plus other income. Some outlets quote it as revenue because it is the largest top-line number in the filing and it is easy to find.

This is the main reason figures differ. One story says revenue grew to a certain amount, another quotes a smaller number, and both can be correct: one used total income and the other used revenue from operations.

A quick test is to subtract. If a story's figure is a little higher than another story's figure for the same company and year, the gap may equal other income. If the gap is large, the two stories are probably using different entities or years.

Treat a revenue figure with no label as unconfirmed until you find the filing line it came from. Two minutes spent matching the number to a line saves a wrong comparison later, especially when you are building a table of several companies.

Below income come total expenses: cost of goods or services, employee costs, marketing, rent, technology, depreciation and interest on loans. The list is short to read once you know the pattern:

Employee benefit expenses and advertising are usually the biggest costs for a consumer startup. Depreciation is the yearly charge for the cost of equipment and software spread over its life, and it is a book entry, not cash leaving the bank on that day.

• EBITDA: earnings before interest, tax, depreciation and amortisation. It shows operating performance before financing and accounting charges.
• Profit before tax: total income minus total expenses.
• Profit after tax (PAT): what is left after income tax, and the figure used for the headline profit or loss.
• Loss: when expenses are higher than income, PAT is negative.

There are four usual reasons. They may use revenue from operations or total income. They may use consolidated numbers (parent plus subsidiaries) or standalone numbers (the parent alone). They may use different financial years, since India's year runs April to March. Or one may quote a figure the company shared and another the filing.

Also be careful with the word growth. A story may compare total income this year with revenue from operations last year, which mixes two lines and can overstate or understate the change.

Even the word revenue itself is slippery. Some outlets mean sales value, some mean net of returns and discounts, and some mean what the company keeps after paying partners. When the figure looks unusually high or low for the business, check which meaning the writer used.

Standalone figures cover one legal entity. Consolidated figures add up the parent and the companies it controls, after removing sales between them. For a group with many subsidiaries, the consolidated number is the better picture, and it is often much larger than standalone.

Consolidation also removes the effect of the parent selling to its own subsidiary, so the group is not counted twice. If a story gives no label, a filing that lists subsidiaries usually has both versions.

Always note four things: which line is quoted, whether it is consolidated or standalone, which financial year, and the source. Compare like with like across years.

Remember that filings can arrive months after the year ends, and that this guide is general information, not investment, legal or tax advice.

It also helps to read two years side by side. A rise in total income that comes mostly from other income, while revenue from operations is flat, is a different story from real sales growth.

If you want to go further, the filing usually lists the auditor's report and notes. Auditors flag matters they could not verify, and those flags can change how much weight a number deserves.