Operating income does not include money earned from investments in other companies or nonoperating income, taxes, and interest expenses. Also excluded are any special or nonrecurring items, such as acquisition expenses, proceeds from the sale of a property, or cash paid for a lawsuit settlement. A company’s net revenue is the money it has earned from performing its core business operations. Net income is the profit that a company has earned after covering the expenses, and taxes, and after accounting for all gains and losses. A well-run company will generally have both high revenue (plenty of success in sales) and well-proportioned income (ability to keep operating costs low).
In this article, I only scratched the surface of financial terminology and concepts. If you need to structure your business’s income statement, I implore you to do a more extensive reading as real-world financial statements can be several magnitudes more complex. This article outlined the most fundamental differences between revenue and income by outlining a few accounting fundamentals and the income statement. By understanding your expenses and subtracting them from revenue, you will eventually reach your income. With your gross profit calculated, we can subtract more business expenses to get closer to the income. These expenses are called operating expenses (OPEX) and vary on a broad spectrum of costs depending on the business.
- EPS is a measurement to determine the amount of a company’s income available to pay its stakeholders through common stock.
- E.g. raw material for shirts (cloth, buttons etc.), purchase and upkeep of machinery, personnel costs and other capital and operational expenses.
- As of late 2022, it had about 670 stores while reporting low debt levels largely as a result of the restructuring.
- The main difference is that revenue is a company’s income before deducting expenses, while operating income represents the profit after subtracting expenses.
For gross income, ensure your accounting team has a grasp of the different areas of expense. A detailed loss statement can spell out selling, general and administrative (SG&A) costs often form the bulk of the expense for SaaS companies. The key differences between income and revenue mean that the two cannot be substituted for one another when reporting on a business’s financials. Let’s quickly dive deeper into these two terms before we get started.
Revenue is the most basic yet important indicator of a company’s profitability and its overall financial performance. It is a critical measure of financial performance that reveals how well a company can generate money from its primary business operations. Generally, analysts and investors carefully assess the company’s revenues from different periods to identify their growth trends. This guide provides an overview of the main differences between revenue vs income. Revenue is the sales amount a company earns from providing services or selling products (the “top line”). Income can sometimes be used to mean revenue, or it can also be used to refer to net income, which is revenue less operating expenses (the “bottom line”).
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Its chief financial officer (CFO) cited the introduction of pricing tiers as the reason for its top-line growth. On the expenses side, they were also able to cut down on taxes by automating VAT tax compliance for their ecommerce platform. The combination of new pricing tiers and tax optimization led to a 60% increase in branches of accounting income. EPS is a measurement to determine the amount of a company’s income available to pay its stakeholders through common stock. A high EPS indicates profitability, as investors will receive a significant amount through dividends. But, apart from being a lifeline, it can provide valuable insights into a business.
Revenue is the total amount of income that a company generates from the sale of goods and services. It refers to the sum generated before deducting any expenses, such as those involved in running the business. Income, revenue, and earnings are probably the three most widely used concepts in accounting and finance. Although they are defined differently, they are frequently confused with one another.
Economics looks at the revenue and income of a whole industry or a whole country. This particular perspective enables the country or industry to assess whether growth is possible or already occurring. Economics takes into account factors like the income and revenue of both individuals like workers or investors as well as entities like governments and businesses. A company’s revenue refers to its total earnings generated by its daily operations, i.e., the sale of goods or services provided.
- But, apart from being a lifeline, it can provide valuable insights into a business.
- In accrual accounting, a customer churning affects my future revenue reporting, not my past.
- Governments use the term revenue to describe the money they collect from taxes, fees, fines, and publicly-operated services.
By the end of this article, you should feel more comfortable with these terms and the fundamentals of calculating your income. You will also understand how startups like WeWork and Uber reported huge revenues of hundreds of millions of dollars but still had a negative income. Revenue is often called the top line of the business, as it is the first line you see when looking at an income statement.
What is the difference between revenue and income?
The investing community often focuses even more on earnings per share (EPS), which is net income divided by the number of shares outstanding. It tells you how much money a company is making for its shareholders. This hypothetical grocery store has a net income of $15,000 on revenue of $100,000, which gives them a profit margin of 15%. With what you have learned by reading this article, you should be well equipped to explore deeper into the minutia of your business’s financials. A quick note, you may sometimes see the acronym EBITDA, which also includes depreciation and amortization.
Revenue vs Income FAQs
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling. It is the total amount of money generated through goods or services. A company’s revenue can be negative, but only when returns exceed sales. Understanding the difference between revenue vs income is crucial for making informed financial decisions, such as budgeting, investing, and pricing strategies.
What Are the Advantages of Revenue Management?
This accruement works well when users are churning from the service and asking for their money back. In accrual accounting, a customer churning affects my future revenue reporting, not my past. Apple posted $99,803 billion in net income (earnings) for 2022 (a $5 billion increase from the same period in 2021). Revenue is the total income generated by a company by producing goods or services in a financial year. This is revenue that does not come from the primary business of the company and may include revenue from unrelated activities, such as interest earned on investments. Bottom line growth is always considered a good thing, and this is why an investor or bank will insist on looking at your company’s revenue vs. net income before giving you money.
Income and revenue are two vital components used in determining a company’s financial strength but are unrelated. Income and earnings are synonymous sometimes, whereas revenue is the amount generated through sales and business operations. Businesses with a well-planned pricing strategy can attract customers and generate higher revenue.
Historically companies like WeWork might do some creative accounting and move costs out of the operating expenses category to seem more profitable than they are. While income is the money a company makes after accounting for expenses and other costs. Understanding the difference between revenue and income is essential to accurately assess a company’s financial health and make informed business decisions. Revenue or net sales refer only to business-related income (the equivalent of earned income for an individual). If a company has other sources of income—for example, from investments—that income is not considered revenue since it wasn’t the result of the primary income-generating activity. Any such additional income is accounted for separately on balance sheets and financial statements.
Difference Between Income and Revenue
In the retail sector, revenue is accrued from the sale of goods to customers, while in the service industry, revenue is generated from providing services to clients. Revenue is often called the top line because it’s located at the top of an income statement. When a company is said to have “top-line growth,” it means the company’s revenue—the money it’s taking in—is growing.
Bottom-line growth and revenue growth can be achieved in various ways. A company like Apple might experience top-line growth due to a new product launch like the new iPhone, a new service, or a new advertising campaign that leads to increased sales. Bottom-line growth might have occurred from the increase in revenues, but also from cutting expenses or finding a cheaper supplier. We can see that Apple’s net income is smaller than its revenue since net income is the result of total revenue minus all of Apple’s expenses for the period. The example above shows how different income is from revenue when referring to a company’s financials. The net earnings of a company during a particular accounting year is known as Income.