Revenue vs. Income: An Overview
Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.Revenue, also known as gross sales,is often referred to as the "top line"because it sits at the topof theincome statement. Income, or net income,is a company's totalearningsorprofit.When investors and analysts speak of acompany's income, they're actually referring tonet income or the profit for the company.
Key Takeaways
- Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.
- Income or net incomeis a company's totalearningsorprofit.
- Both revenueand net income are useful in determining the financial strength of a company, but they are not interchangeable.
Revenue
The revenue numberisthe income a company generatesbeforeany expenses are taken out.Therefore, when a company hastop-line growth, the company is experiencingan increase in gross sales or revenue.
Both revenueand net income are useful in determining the financial strength of a company, but they are not interchangeable. Revenue only indicates how effective a company is at generating sales andrevenue and does not take into consideration operating efficiencies which could have a dramatic impact on the bottom line.
Businesses can generate revenue from a variety of sources. These include (but aren't limited to):
- The sale of goods, services, and assets
- Advertising
- Licensing agreements
- Fees and service charges
- Subscriptions
- Rental income
Companies recognize and record revenue differently. As such, it isn't always the same—even for companies within the same industry. If you're unsure of how a specific company defines it, you can find out in its financial statements.
Income
Income is often considered a synonym for revenue sinceboth terms refer to positive cash flow. As such, it is commonly used to describe money earned by a person or company in exchange for goods, services, property, or labor. But income almost always refers to a company's bottom line in a financial context since itrepresents the earnings left afterall expenses and additional income are deducted.
Just like revenue, income can be broken up into different categories—namely these two:
- Gross Income: Gross income is the total income recorded before any taxes and expenses are deducted. Gross income may also be referred to as gross profit or gross margin. It is found on the income statement.
- Net Income: Net incomeis calculated by taking revenuesand subtracting the costs of doing business, such asdepreciation, interest, taxes,and other expenses. The bottom line, or net income,describes how efficient a company is with its spending and managing itsoperating cost. This figure appears on a company'sincome statementand is an important measure of theprofitability ofacompany.
Income can be used to analyze and determine whether a company is operating efficiently.
Common financial ratios that use data from the income statement include profit margin, operating margin, earnings per share (EPS), price-to-earnings ratio, and return on stockholders' equity.
Key Differences
Revenue and income are two very important financial metrics that companies, analysts, and investors monitor. As noted above, revenue and income are often used interchangeably. But they are inherently different.
Revenue is the total amount of money an entity earns from a variety of sources. Income, on the other hand, is the total amount of money earned after all expenses are deducted. This includes taxes, depreciation, rent, commissions, and production costs, among others. A shortfall in revenue is known as a revenue deficit.
Other differences include:
- Each figure is recognized and recorded on different parts of the financial statement. Revenue is considered the top line while net income is the bottom line.
- Revenue is calculated differently than income. While revenue is calculated by multiplying the total number of goods and services sold by their prices, income is calculated by subtracting expenses, costs, and taxes from total revenue.
Revenue vs. Income Example
Apple (AAPL)posted a top-line revenue number of $394.33 billionfor 2022.Apple posted$99.8 billion in net incomeforthe same period.
We can see that Apple'snet income is smaller than itsrevenue since net income is the result of total revenue minus all of Apple's expenses for the period. The example above shows howdifferent income is from revenue when referring to a company's financials.
Bottom-line growth and revenue growth can be achieved in variousways. A company like Apple mightexperiencetop-line growth due to a new product launch like the new iPhone, a new service,oranew advertising campaign that leads toincreasedsales.Bottom-line growth might haveoccurred from the increase in revenues, but also from cuttingexpenses or finding a cheaper supplier.
Can Income Be Higher Than Revenue?
In general, income can never be higher than revenue because income is derived from revenue after subtracting all costs. Revenue is the starting point while income is the endpoint. In cases where income is higher than revenue, the business will have received income from an outside source that is not operating income, such as a specific transaction or investment.
Is Revenue or Income More Important?
While both measures are important and that income is derived from revenue, income is generally considered more important. The reason is that income is profit, which shows that a business is able to cover its expenses and use that profit to grow the business and not rely on outside sources, such as debt, to continue operating. Strong revenues will indicate that a business can sell its product or service but strong profits will indicate a business is in good financial health.
What Are the Advantages of Revenue Management?
Revenue management allows a company to better manage its sales tactics, its costs, such as the need for raw materials, offer a better price point to customers, run operations more efficiently, and keep inventory slim.
The Bottom Line
There are a number of important financial metrics that companies report each quarter, including revenue and income. These two figures are often used synonymously because they refer to money a company earns. But they are inherently different. While revenue refers to money earned from a variety of sources, income is any money left over after all expenses are accounted for, including taxes and other costs. One way to tell the difference is where each shows up on a financial statement: Revenue at the top and income at the bottom.
