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Revenue Vs Income
Have you wondered what is the difference between revenue and income?
Revenue is a financial term referring to the total sales generated by a company.
Typically, the revenues refer to a company’s gross sales or its earnings before deduction of its cost of goods sold, taxes, depreciation, or other deductions.
On the other hand, income refers to a company’s profits.
As such, income is a term used to refer to how much a company was able to generate in profits after the business expenses and other deductions were made from its revenues.
Investors, financial analysts, and company management are interested in understanding a company’s revenues versus income as they can then get a better understanding of the company’s overall financial health.
The company’s total revenues will show how much a company generated in earnings in total and the company’s income will show how much of the revenue the company was able to keep as profits.
The trend of revenue and income fluctuations over time can also provide a sense of where the company was and where it is heading.
Consider a companies revenues as a means of showcasing a company’s ability to generate sales whereas a company’s income figures showcases a company’s ability to turn sales into a sustainable and efficient business operation.
What Is Revenue
According to Investopedia, revenue is defined as follows:
Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations.
As you can see from this definition, we can qualify revenue in the following manner:
- It represents how much a company generated from its main operations
- The revenue figure does not take into account a company’s cost of goods sold or expenses
- You’ll typically find this number on top of your income statement
Revenues can also be called “gross sales” or “top line” earnings.
What is Income
According to The Corporate Finance Institute, income is defined as follows:
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”).
Based on this definition, we can qualify income in the following manner:
- It represents a company’s profits after it has deducted its operating expenses
- The income figure allows us to see if a company is profitable in its business operations or not as it factors its operating expenses
- Typically, you’ll find the income figure at the bottom of your income statement
Income can also be referred to as “net income” or “net profit”.
Net Revenue Vs Net Income
Net revenue, or net sales, represents a company’s gross revenue less the cost of goods sold.
For example, if a company was able to generate $100,000 by producing and selling goods and it cost the company $60,000 to produce the goods, its net revenue will be $40,000.
As such, net revenues provide a better understanding of how much revenue a company can generate if we factor out its cost of goods sold.
Net income refers to a company’s total profits generated from its business operations.
The net income refers to the money left to a company once it has paid for the costs of goods sold and its cost of doing business.
For instance, if a company generated $100,000 in revenues, had $60,000 cost of goods sold, and had a total of $15,000 in depreciation, expenses, and taxes, its net income would amount to $25,000.
As you can see, the net income, or company profit, is what’s left from the company’s revenues once all costs and expenses have been accounted for.
Gross Revenue Vs Gross Income
Gross revenue, or gross sales, refers to the total amount of earnings a company generated from its business operations without consideration of its expenditures.
For example, if a company generated $100,000 in revenues to sell its products and had a $65,000 cost of goods sold, the company’s gross revenues will be $100,000.
In essence, by looking at the gross revenues, we are interested to determine how much the company generated in total sales revenues regardless of its expenditures.
Gross income, also known as gross profit or net revenue, refers to a company’s gross revenues less the cost of goods sold.
In other words, a company’s gross income figure gives us an appreciation of how much a company was able to generate in revenues, after deducting the costs of producing its goods, to see what’s left to fund the company’s cost of doing business.
Income vs Revenue Takeaways
What is the difference between revenue and income?
What about revenue vs net income or revenue vs gross income?
It’s quite common for many to use the terms “income” and “revenue” interchangeably as they both represent cash flow to the company.
However, from a financial point of view, the terms income and revenue have a different meanings.
Financially speaking, “revenue” refers to top-line earnings whereas “income” refers to bottom-line earnings.
In other words, revenues only show sales without consideration of costs and expenditures whereas income shows net profit once a company has made an accounting deduction of its cost of goods sold, business expenses, depreciation, interest, taxes, and other expenses.
Let’s look at a summary of our findings.
Revenue Vs. Income
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