Financial Statements

Revenue vs. Income: A Thorough Comparison

Last updated Friday, December 30, 2022

Revenue and income might sound similar or even equal, but they are far from being the same. In fact, accountants who don’t know all the key differences between the two might struggle to prepare appropriate financial reports. To avoid the usual confusion, we highlighted everything you need to know in this article—read on to see all of them with hands-on examples.

A Comparative Look at Revenue vs. Income

The total income a company brings in via the sale of products or services connected to its core business is referred to as its revenue.

Because it is located at the very top of the income statement, revenue also referred to as gross sales, is frequently referred to as the "top line." The whole amount of a company's earnings or profit is referred to as its income, sometimes known as its net income.

More details about The Importance Of The Income Statement In Accounting.

When investors and analysts talk about a company's income, what they really mean is the company's net income or its profit for a given period of time.

Main Takeaways

  • The total income that a company brings in via the sale of products or services that are connected to its core business is referred to as its revenue.
  • A company's overall earnings or profit might be referred to as its income or net income.
  • It is possible to get an idea about the financial health of a business by looking at its sales as well as its net income, but these two metrics are not interchangeable in any way.

Revenue

The amount of income that a corporation makes before any expenses are deducted is referred to as the revenue number. As a result, when a company is said to be enjoying "top-line growth," it means that the company is seeing an increase in either its gross sales or its revenue.

It is possible to get an idea about the financial health of a business by looking at its sales as well as its net income, but these two metrics are not interchangeable in any way.

The company's ability to generate sales and revenue is the only factor that is taken into consideration when calculating revenue; operational efficiency, which can have a significant influence on a business's bottom line, is not taken into account.

Income

A company's net income can be determined by beginning with its revenues and then deducting all of the costs associated with running the company, including depreciation, interest, taxes, and any other operating expenses.

The bottom line, or net income, is a measure of how well a firm is able to control its expenditures and manage its operating expenses. Operating margin, earnings per share (EPS), profit margin, price-to-earnings ratio, and return on shareholders' equity are examples of common financial measures that employ data from the income statement.

Read more about Contribution Margin Calculation.

Income and revenue are often used interchangeably because they both indicate a positive cash flow. However, in the context of finance, the term income nearly always means the bottom line or net income because it represents the total amount of earnings that are left after taking into account all expenses and additional income.

The amount of a company's "net income" may be found on its income statement and serves as an essential indicator of the company's level of profitability.

Revenue vs. Income Example

The top-line revenue number for 2021 for Apple Inc. (AAPL) was reported to be $365.8 billion. The number that the company reported for its revenue reflected an increase of 33.3% when compared to the previous year. A year-over-year comparison reveals a rise of 64.9% in Apple's net income, which came in at $94.7 billion for the period in question.

Since Apple's net income is the result of total sales being reduced by all of Apple's expenses for the period, it is clear that Apple's net income is significantly lower than the company's total revenue. The preceding illustration illustrates how income should not be confused with revenue when discussing the financials of a company.

Growth in both the bottom line and revenue can happen in a number of different ways. A top-line expansion may occur for a corporation like Apple as a result of the introduction of a new product, such as the newest product, a new service, or a new advertising campaign that ultimately results in an increase in sales.

The expansion of the bottom line could have been brought about not just by the increase in revenues but also by the reduction of expenses or the discovery of a cheaper supplier.

Is It Possible That Income Could Exceed Revenue?

In general, income can never be more than revenue since income is produced from revenue after all costs have been subtracted. This means that income can never exceed revenue. The beginning point is determined by revenue, and the ending point is income.

When a company's income is higher than its revenue, it means that the company has received income from a source other than its normal operations, such as a particular transaction or investment. This is the case when the income is higher than the revenue.

Is It Better To Have Revenue Or Income?

Although both measurements are significant, and despite the fact that income is a direct result of revenue, income is typically regarded as being of greater significance.

The reason for this is that income can be converted into profit, which indicates that a company is able to cover its operating costs, invest the profit it makes back into the company so that it can expand, and continue doing business without having to rely on funding from outside sources, such as debt.

Strong revenues are a good indicator that a company is able to turn its product or service over, but healthy profits are the best indicator of a company's financial health.

What Are The Benefits Of Utilizing A Revenue Management System?

A company that effectively manages its revenue is able to better manage its sales strategies and its costs, such as the need for materials, offer a better price to customers, run operations more efficiently, and maintain a leaner inventory.

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