Revenue is the amount earned by selling products or services connected to a business's core operations. Revenue, also known as gross sales, is sometimes referred to as the "top line" of the income statement since it appears at the top. Income, or net income, is a business's overall profits or profit. When investors and analysts discuss a company's income, they refer to its net income or profit.

Revenue

The revenue figure represents a company's income before costs are deducted. When a business has "top-line growth," it enjoys a rise in gross sales or revenue. Both sales and net income are valuable indicators of a company's financial health, but they are not interchangeable. Revenue reflects a company's effectiveness at producing sales and revenue; it does not account for operating efficiency, which might have a significant influence on the bottom line.

Income

Revenues are subtracted from costs of the running company, such as depreciation, interest, taxes, and other expenses, to determine net income. The bottom line, or net income, reflects a company's expenditure and expense management effectiveness.

Income is frequently synonymous with revenue, as both terms refer to positive cash flow; however, in a financial context, income almost always refers to the bottom line or net income, as it represents the total amount of earnings remaining after expenses and additional expenses income have been deducted. Net income shows on the income statement and is an essential indicator of a company's profitability.

Revenue vs. Income Example

Apple Inc. (AAPL) reported sales of $365.8 billion for the fiscal year 2021. The company's sales increased by 33,3 percent over the previous year. Apple's net income for the same time was $94.7 billion, representing a 64.9% rise year-over-year.

Apple's net income is less than its total revenue, resulting from incremental revenue minus all costs incurred during the period. The above example illustrates the distinction between income and revenue when discussing a company's financials.

Profit and revenue growth may be accomplished in several ways. A corporation like Apple may have top-line change due to introducing a new product like the iPhone, a new service, or a new advertising campaign that results in more sales.

Can Income Possibly Exceed Revenue?

In general, income cannot exceed revenue since income is obtained from revenue after deducting expenses. The starting point is revenue, whereas the ending point is income. In circumstances when income exceeds sales, the firm will have received non-operating payments from outside sources, such as a particular transaction or investment.

Revenue or Income: Which Is More Important?

Even though both indicators are vital and that income is produced from revenue, payment is typically seen as more significant. The rationale is that income is profit, demonstrating that a corporation can meet its expenditures and use the profit to develop without relying on external sources such as debt.

Identifying Your Income

After calculating your operational earnings, you can deduct the tax rate appropriate to your firm. Each state has its tax rate, while the current federal tax rate for US-based firms is 21%. Some popular locations for international business incorporation have simple and low corporate tax rates. Singapore's rate, for example, is 17 percent. At this point, you would also deduct the business's interest payments on its debts and loans.

What are Revenue Management's Advantages?

Revenue management enables a company to manage its sales strategies and costs, such as the need for raw materials, offer customers better pricing, run operations more efficiently, and maintain a lean inventory.

Revenue vs Income Examples

Are you still attempting to comprehend the meaning of revenue? Examining the financial statements of an example SaaS firm, Company X is an excellent illustration of sales vs income. In 2018, Company X generated $1 million in revenue and $500 thousand in net profitability. The company's net income is always less than its revenue since it is calculated by subtracting expenditures from total sales.

In 2019, Company X had $1.2 million in sales and $800,000 in net profitability. Its chief financial officer (CFO) attributed its top-line rise to introducing price tiers. Additionally, they could save expenditures by automating VAT tax compliance for their eCommerce platform.

Cost-Of-Goods-Sold Calculation

Cost of goods sold (COGS) refers to all direct expenses associated with producing a product or service. The COGS calculation for a conventional e-commerce firm selling tangible goods might look like this:

Cost of Goods Sold = Beginning stock plus purchases minus ending stock

Where beginning inventory is the number of items in dollars remaining from the previous period, acquisitions are the new product inventory added during this period, and the ending list is what remains after the period.

For a service-based corporation with no tangible goods, COGS might refer to the wages of the person delivering the service, such as Uber paying its driver to transport passengers and direct costs for maintaining the app operational.