Investors can better understand the relationship between a company's business operations and its balance sheet by looking at assets vs. revenue. Once understood, this can show how a business is performing over time -- crucial information for all long-term investors.
In this article, we'll explain what assets are and what revenue is and contrast the differences between the two to paint a clearer picture.
What are assets?
What are assets?
Assets are things that companies possess and that have or create value. Assets are listed at the top of a company's balance sheet.
Asset
Various things qualify as assets. These things vary greatly with regard to liquidity, or how quickly they can be sold for their full value. In fact, some assets aren't liquid at all.
Here's a non-exhaustive list of examples of assets:
- Cash, cash equivalents, and short-term investments. Cash is a liquid asset that can immediately be used for making purchases. Cash equivalents and short-term investments include things such as Treasury bonds, money in high-yield savings accounts, and certificates of deposit that expire in less than 12 months. They're often easily converted to cash and have a very low chance of decreasing in value.
- Long-term investments. Sometimes, companies have investments that they intend to hold for longer than one year. This can include investments in public companies. For example, as of the second quarter of 2024, e-commerce giant eBay (EBAY 1.45%) had an investment in financial technology company Adyen (ADYE.Y 3.31%) valued at $300 million. The investment is an asset. But the company can't sell until 2025, so it's not a very liquid asset right now. Its stake also can change in value with Adyen's stock price volatility.
- Property and equipment. Fast-food giant McDonald's (MCD 3.66%) is a great example of a company with this kind of asset. The company both owns and leases land, building restaurant buildings in these locations. At the end of 2023, these buildings were valued at over $33 billion. Moreover, franchisees use these buildings and pay rent to McDonald's, making these income-producing (revenue) assets and contributing to McDonald's healthy return on assets of almost 16%.
- Goodwill. Some assets are intangible, and this includes goodwill. If a company buys another business above the value of its net assets, the difference is regarded as goodwill. This often happens with acquisitions because an acquired company can have value beyond the tangible numbers. But these assets aren't very liquid.
What is revenue?
What is revenue?
Revenue is money flowing into a company for providing goods and services to its customers. It's listed at the top of the consolidated statements of operations (also called the income statement).
Revenue
Revenue is often synonymous with sales, net of returns. But this isn't always the case.
For example, Domino's Pizza (NYSE:DPZ) had net sales of more than $18 billion in 2023. However, most of its pizza restaurant locations are owned by franchisees. These franchisees only pay Domino's a percentage of net sales. So Domino's Pizza's revenue for food sales was about $1.3 billion in 2023 -- less than 10% of net sales.
Moreover, Domino's generates revenue from other things as well. Over 10% of the company's overall revenue came from franchisees paying into the corporate advertising fund, which is intended to all be spent on advertising, not profit. As investors can see, revenue can get complicated, depending on the business.
There's another wrinkle with revenue: There may be a difference between when money comes in and when it can be recognized as revenue from an accounting perspective.
For example, many travelers book places to stay with Airbnb (ABNB -0.12%) months before their travel dates. These travelers pay Airbnb at the time of booking, and this money immediately hits Airbnb's coffers. The company then holds the money until guests check in. Once they check in, it sends money to the property owners and retains a percentage for its own revenue. So Airbnb's revenue often comes in months before it can be recognized, and the company doesn't retain everything that initially came in.
Herein lies one of the stronger relationships between assets and revenue. While Airbnb is waiting for travelers to check in, the money is recorded on the balance sheet as an asset -- the company possesses it, and it has value. However, it doesn't belong to Airbnb, so it's also listed as a liability on the balance sheet. When travelers eventually check in, the company's assets and liabilities decrease as money finally shows up on the income statement as revenue.
The major differences
Assets vs. revenue: The major differences
| Assets | Revenue |
|---|---|
| Listed on the balance sheet. | Listed on the income statement. |
| A single number recorded at a moment in time, typically the final day of the financial period. | A cumulative amount recorded during the financial period. |
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The bottom line
The bottom line
When public companies issue press releases, they show investors the numbers they want you to see, not necessarily all of the numbers that you need to see to make the best investment decision. However all of the pertinent numbers are in the balance sheet, statement of operations, and statement of cash flows (not discussed here).
At first, it can be intimidating to evaluate assets vs. revenue. But everyday investors can learn to parse items like these in the three main financial statements. Doing this will help you see everything with businesses -- the good and the bad. And doing so will also give you an edge over other investors who don't want to put in as much work.
FAQ
Assets vs. revenue FAQ
Are assets the same as revenue?
No, assets aren't the same as revenue. Assets are items of value that a company already owns, while revenue is money flowing into a company for providing goods and services.
What is revenue vs. assets in accounting?
For accounting purposes, assets are listed on a balance sheet. Revenue is disclosed on an income statement.
Why is income not an asset?
When a company has income (revenue), it still needs to pay operating expenses, taxes, and more. Some companies don't have an accounting profit at all after all the bills are paid. So, income is not an asset.
With income, companies can do things like buy other assets or reward shareholders. Therefore, there is a relationship between assets and income.
Is cash considered revenue or asset?
Cash in a company's possession is considered an asset.
