Now that we understand Presentation, Calculation and How a company defines revenue, it's time for us to look into how a company sources revenue and few analytical aspects that an analyst can keep in mind to get a deeper understanding of business from these different data cuts and analysis.
There are multiple ways for an analyst to judge how a company sources its revenue. Few ways, we are going to analyse sourcing of Revenue by the company are as follows:
Product/ Service Level Revenues
Individual Product wise Revenue
Manufactured Vs Traded Revenue
Commodity product Vs Specialised product Revenue
Revenue on Key products/ anchor products basis
Standalone Vs Consolidated Revenue
Customer Wise Revenue
Operating Vs Non-Operating Revenue
Segment Level Revenues
Geography Level Revenue
Period Wise Revenue
Determining market share of a company on the basis of key Industry parameters.
Let’s begin with Product/ Service Level Revenues.
a) Individual Product/ Service wise Revenue
Case study: PVR
Often businesses tend to give details of different lines of products/ services through which the company has sourced its revenues from. Ex: PVR, when we open its footnote, it directly mentions products or services through which revenue has been generated.
However, not all companies are this straightforward in their disclosures or maybe sometimes analysts would want much granular level information. You would not find it in footnotes, so to source these, you will have to take a look at Investor Presentations/ Concall Transcripts to get a much better understanding at a product level Revenues.
Another very important source to seek revenue breakup is MGT 9 in Annual Report.
Case study: VIP INDUSTRIES
VIP Industries is known to manufacture and trade Hard luggage (suitcases, trolley bags, etc) and Soft luggage(duffel bags, etc). If an analyst wants to track their individual product revenue contribution, one won't be able to find it in the footnotes of Revenue.
But you will find it in MGT 9 form within its Annual Report (screenshot below)
An Analyst can also choose to conduct time series analysis of similar data to derive meaningful conclusions (if any) regarding the way business has been operating. We have done it for you :)
There seems to be a significant increase in hard luggage Revenue contribution lately as customer preferences have once again shifted recently to hard luggages from soft luggage (around 2014-2017). The same question has been asked by an analyst in its Conference call below:
b) Manufactured Vs Traded Revenue
Usually businesses tend to manufacture its premium products in-house (high profit margin products) and have some products outsourced elsewhere/ buy it from some other firm, rebrand it/ sell it to its own customers eventually. Such goods are called Traded goods. These traded products are usually commodity products which can be manufactured by many other market participants, hence happen to be low margin products. Please note, this need not always be true for both Manufactured and traded goods, We will teach you how to verify this in our COGS and Inventory blogs.
Case Study: Vidhi Speciality
Analysing trends in these sources of revenues give us very good insights regarding the way business operates. Breakup of these goods are usually available in Revenue footnotes. Ex: Vidhi Specialty food Ingredients engages in manufacturing and trading of food colors and chemicals.
From above, the company has outsourced 15% (3115.37/21345.21) of its Total revenue products and has manufactured 85% (100%-14.6%) of overall revenue in house. An Analyst can also choose to conduct time series analysis of similar data to derive meaningful conclusions (if any) regarding the way business has been operating. We have done it for you :)
One can conclude that the business has been increasing % of Revenue from in house manufacturing as compared to outsourcing over the years. This has resulted in more manufacturing of high margin products internally boosting profit margins of the entire business over the years! How these profit margins are computed and how it is that we have verified that the manufacturing products have higher margins, as highlighted earlier will be covered in our COGS and Inventory topics in our blog.
Please Read Blog 108 - Analysing Sources of Revenue Part 2 for further analytical aspects regarding source of Revenue