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 top of the income statement. Income, or net income, is a company's total earnings or profit. When investors and analysts speak of a company's income, they're actually referring to net 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 income is a company's total earnings or profit.
- Both revenue and net income are useful in determining the financial strength of a company, but they are not interchangeable.
What Is The Difference Between Revenue And Income?
Revenue
The revenue number is the income a company generates before any expenses are taken out. Therefore, when a company has "top-line growth," the company is experiencing an increase in gross sales or revenue.
Both revenue and 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 and revenue and does not take into consideration operating efficiencies which could have a dramatic impact on the bottom line.
Income
Net income is calculated by taking revenues and subtracting the costs of doing business, such as depreciation, interest, taxes, and other expenses. The bottom line, or net income, describes how efficient a company is with its spending and managing its operating costs.
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.
Income is often considered a synonym for revenue since both terms refer to positive cash flow; however, in a financial context, the term income almost always refers to the bottom line or net income since it represents the total amount of earnings remaining after accounting for all expenses and additional income. Net income appears on a company's income statement and is an important measure of the profitability of a company.
Revenue vs. Income Example
Apple Inc. (AAPL) posted a top-line revenue number of $365.8 billion for 2021. The company's revenue number represented a 33.3% year-over-year increase. Apple posted $94.7 billion in net income for the same period, which represented a 64.9% increase year-over-year.
We can see that Apple's net income is smaller than its total 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.
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.
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.