Revenue vs Earnings

Difference Between Revenue vs Earnings

Revenue is the total Sales done by a Business unit such as a Firm, Company, etc. in an entire financial year. However, the period can be even break up into Quarterly or half-yearly, nine-months or even on a monthly basis to determine the sales done by the company. On the other hand, Earnings are the left out of the total income after excluding all the expenses (both operating and non-operating) and all taxes in case of Profits. The Earnings of the company depends upon various factors such as the Sector in which the company caters, raw materials or cost of goods sold used for the preparation and marketing of the product, etc.

Let us study much  more about Revenue and Earnings in detail:

In Financial terms Total Income or Total operating Revenues are termed as the ‘Top-line’ and Earnings or the Net-profit is termed as ‘Bottom-line’ of a Company. The reason behind terming Revenue as the Top-line and Earnings as the Bottom-line are as follows- Revenue is the first item when appears in an income statement and Earnings or Net profit comes as the last item as all the expenses and incomes appeared before Net profit.

Higher Earnings does not necessarily guarantee higher growth – this happens when there is poor operational efficiency in the organization and cost-reduction techniques are not followed. This results in an abnormal increase in both operating and non-operating expenses; which results in a decrease of Earnings and Net profit margin. The net profit margin is the percentage of net earnings over total income. The higher the margin, the better the financial health of the Business. For Example- ABC Ltd. made Total Revenue of INR 10,00,000 in FY18 with a Net Profit of INR 80,000. Whereas XYZ Ltd. made total Sales of INR 8,00,000 with a  Net profit of INR 80,000. Thus even though both the company’s earnings are the same, we cannot treat the financial health equally for both the companies. Because in the first case ABC Ltd has revenue of INR 10,00,000 which is higher than XYZ Ltd. and the Net Profit margin is 8%(Profitability as a percentage of Revenue). In the second instance, Even XYZ Ltd. has a Lesser Income than ABC Ltd, the company was able to derive equal Earnings with a Net margin of 10% (Profitability as a percentage of Revenue).

In the Modern world of business, Businesses are recognized on the basis of Total Revenue generated by the Company. This means the particular product of that particular company as the ability to derive that total amount of Sales.  When similar companies within the same industry deliver different Net profit margin, then we can look for the root causes of variations. One the income-generating capacity from one product would be lesser than the other; so automatically the higher income derive by Product one has a higher demand due to higher acceptability and higher customer satisfying ability. Thus if the two products remain within the same business environment, the costs associated with the products would be more or less the same. But the Product with higher acceptability would result in higher earnings or higher bottom-line than the Second product. Even if the products are more or less the same in nature and have the same acceptability, then also there can be variances in the bottom-line when the management of one company is less efficient than the other and vice versa.

The format of Income Statement showing Total Revenue vs Earnings

Head To Head Comparison Between Revenue vs Earnings (Infographics)

Below is the top 5 difference between Revenue vs Earnings

Key Differences between Revenue vs Earnings

Both Revenues vs Earnings are popular choices in the market; let us discuss some of the major difference:

• Revenue comes as the topmost item in the Income Statement Format whereas Earnings come as the last item in the Income Statement category.
• In most of the profitable Business Net profit is expected to be on the higher side as the product is well accepted by the customers and the Business derives enough profits even after meeting all the expenses.
• It has been observed that the cost-efficient business has always delivered higher returns in terms of Net Margin.
• Depreciation and taxes are adjusted from Total Income to get the Net Earnings.
• Higher Revenue depends upon the product acceptability and the total demand for the product across the sector whereas higher Net Earnings depend on the low costs or higher efficiency business.

Revenue vs Earnings Comparison Table

Here are some of the comparisons between Revenue vs Earnings –

The basis of  Comparison	Revenue	Earnings
Related to	Stands for Total Income derived by any Business Entity.	Stands for Earnings left after deducting all expenses from Total Income.
Meaning	Total Business done by the company or in another word the Income received by selling product by the company in a Financial year.	After deducting all the expenses both operating and non-operating, the left out a portion of Money is known as the Net profit of the company.
Depreciation/Amortization	Depreciation/Amortization is not included because it comes under operating expense.	Depreciation/Amortization is taken into account as it is included in operating expenses and it is deducted when the net profit is calculated.
Calculations	Total income generated by a Company after selling its products in a particular financial year.	Total Revenue- (All Operating Expenses including Depreciation and amortization+ all non-operating expenses+ interest costs +taxes)
Financial Market	Financial Markets emphasizes the income generation capability of the companies within the same sector. The higher amount is considered as better.	Financial market Gives priority to this item. Higher earnings are considered as better. Again higher Net Profit margin is also acceptable.

Conclusions

In the world of businesses, any company when comes up with a new idea or new product, they aim to increase the volume or number of unit sales so as to overcome the costs of manufacturing and other product-related costs like marketing and selling and Finance costs etc. The net profit margin defines the viability of the business, the higher net profit marks higher business efficiency. I hope now you must have got a fairer idea of Revenue vs Earnings. Stay tuned to our blog for more articles like these.

Recommended Articles

This has a been a guide to the top difference between Revenue and Earnings. Here we also discuss the Revenue vs Earnings key differences with infographics, and the comparison table. You may also have a look at the following articles to learn more –

1. Revenue vs Sales
2. Revenue vs Income
3. Stock vs Options
4. Stock vs Equities