Revenue vs. Income: An Overview
Revenue is the total amount of money generated from a business's primary operations.It is also called gross sales or "the top line"because it is the first line on anincome statement. It is calculated by multiplying a company's average sales price by the number of units sold.
Income is a company's totalearningsafter all expenses and earnings not counted as revenue are deducted.It is calculated by subtracting expenses, interest, cost of sales or goods sold, and taxes from total revenues.
Key Takeaways
- Revenue is the total amount of money generated by the sale of goods or services related to the company's primary operations.
- Income or net incomeis a company's totalearningsafter deducting expenses.
- Both revenueand net income are useful in determining the financial strength of a company, but they are not interchangeable.
Revenue
Revenueisthe money a company generatesbeforeany expenses are taken out.It only indicates how effective a company is at generating sales. It does not take into consideration operating efficiencies, which could have a dramatic impact on the bottom line.
Revenue can come 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 the earnings left afterall expenses and additional income are deducted.It is more commonly called net income because it is the net result after the deductions. There may be several line items subtracted from revenue to arrive at net income.
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 costs. 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.
Revenue vs. Income
To really grasp how significant the difference between revenue and income can be, consider Apple, one of the largest tech companies on the market. It had a $294.5 billion difference between revenue and net income for its 2022 year. From a net sales (total revenue) of $384.3 billion, Apple deducted its:
- Total cost of sales: $223.5 billion
- Total operating expenses: $21.3 billion
- Other income (expense), net: $334 million
- Income taxes: 19.3 million
Which gave the company a net income of $99.8 billion for its 2022 year.
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 several 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. However, revenue refers to money earned from a variety of sources, while income is any money left over after all expenses are accounted for, including taxes and other costs.
