Revenue vs Income

Difference between Revenue vs Income

What are Revenue and Income? Why are they different?

To a common man, and sometimes used interchangeably, revenue vs income can be the same. However, there lies a thin line of difference between revenue vs income.

 “Revenue” is a term used for the gross income for a particular period. It may be used for a particular individual, a trust, an institution, a partnership firm or other limited liability company. The understanding, however, is the same – revenue is the raw income reported which includes all the expenses and (any other) payment obligations. In this section, we are going to consider Revenue of a company.

Revenue of a company is the income received directly from sales and is reported as “Sales Income” or “Gross Income” or “Gross Revenue”. This should not be confused with profit. As this figure includes costs and expenses which are related to that period, it is just considered as total sales. This is the beginning point of a profit and loss statement.

There are different levels at which each type of costs and expenses are subtracted from revenue (profit is calculated at each level). The final profit amount calculated (Net Profit) is also known as “Income”. Net Profit is also derived to calculate the payout to be made by a company to its stockholders.

Consider the below hypothetical example of a Profit and Loss statement:

Revenue is also called “Sales” in a profit and loss statement. After deducting different types of expenses, different levels of profits are calculated (like Gross Profit; Operating Profit; Earnings before Interest, Depreciation, Taxes, and Amortization (EBIDTA), and Profit after Taxes (PAT)). Each of these types of profits has their own relevance, and hence their existence.

For example, Gross Margin is a financial ratio which relies on the gross profit to net sales of a company; higher this ratio more is the company’s repayment power of interest, taxes, depreciation and amortization costs required to pay.

Revenue vs Income Infographics

Below are the Top 9 differences between Revenue vs Income

Application of Revenue vs Income

Below is the different applications of  Revenue vs Income are as follows:

• Being the net profit, Income is considered as the more reliable profit figure, since it is assumed to have considered all expenses and other obligations a company needs to pay out.
• Income is used in all type of analysis like Total Earnings of the firm, Financial Ratios (which depend on the profit of the company) and the company’s payout to its stockholders.
• The measure of a company’s profitability and standing in the market.
• In certain cases, it may be a negative figure, which may refer that the company has more expenses than its income. Depending upon its account of expenses, it may also refer that the company may be using much of its revenue in inventory, or towards research and development, or maybe towards the development of assets.
• Net profit figure can be used for all future projections, and likewise, decisions can be taken for further improvement of sales, or for other development of the firm.
• More the net profit more is the chance of vertical and lateral expansions of the company. The revenue figure can be misleading depending upon expenses and reserves to be kept for future obligations. Hence, derivation of the final figure after all considerations is the safest way to understand where the company stands currently, how can they reduce costs and expenses to optimize net profits and how sales can be enhanced.

Head To Head Comparison Between Revenue vs Income

Let us make a comparative study to understand the comparison between Revenue vs Income

­Revenue vs Income – Final Thought

Revenue is the gross profit which is apparent at the time of sales made by the company. However, the actual profit, which is further applied for other purposes, is only derived after subtracting all expenses which are incurred by the company in making those products and its sales, plus other expenses that are required for running the company. This is the net profit or income, and this is the reason why all analysts, market drivers, and company projections prefer the same in their analysis.

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