Operating Income vs Revenue: Whats the Difference?

For the average individual, earnings and revenue may have the same meaning. However, there are small differences between the two words that would make one more appropriate to use in certain conversations or for select writing purposes. In reality, both “earnings” and “revenue” represent a certain amount of money for either an individual or a small business.

• While revenue offers insights into the company’s market presence and scale, earnings shed light on its profitability.
• Last year, it amassed $100 million from widget sales and an additional $10 million as interest from investments, resulting in a total revenue of $110 million.
• Earnings typically refer to after-tax net income, sometimes known as the bottom line or a company’s profits.
• Net income is the first component of a retained earnings calculation on a periodic reporting basis.

In simple terms, it is the amount a firm receives from the sale of its output before any expenses. We hope it has helped your understanding of accounting and financial reporting. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Based on revenue alone, a company could appear to be financially successful.

A business has several different types of income

If a company sells a product to a customer and the customer goes bankrupt, the company technically still reports that sale as revenue. Therefore, revenue is only useful in determining cash flow when considering the company’s ability to turnover its inventory and collect its receivables. While revenue offers insights into the company’s market presence and scale, earnings shed light on its profitability. It’s akin to understanding both the breadth and depth of a firm’s financial ecosystem.

For example, a local coffee shop’s revenue is the total amount of money earned from the sale of coffee and snacks to the customers. Income, revenue, and earnings are probably the three most widely used concepts in accounting and finance. Although they are defined differently, they are frequently confused with one another. Investors and analysts use these numbers to determine a company’s profitability and to evaluate a company’s investment potential.

Do you already work with a financial advisor?

Revenue is the total amount of income earned in a period before expenses have been taken out. Also, earnings can be referred to as the pre-tax income of a company. Also, companies commonly report earnings per share (EPS), which indicates their earnings on a per-share basis. In accounting, the income statement (also called the Statement of Profit and Loss) summarizes a company’s revenues, expenses, and net income. Revenue is calculated by multiplying the unit price of goods or services by the number of units sold.

Revenue vs. Earnings Example

In the realm of finance and accounting, revenue and earnings are the cornerstones of assessing a company’s financial health. Grasping these concepts is vital, especially when delving into financial statements, an investor’s primary tool for gauging a company’s worthiness as an investment. This article elucidates the subtle distinctions between the two, enhancing your financial literacy. Retained earnings are the cumulative total of profit or net income that a company has put aside or saved for future use. Retained earnings are listed in the shareholders’ equity section of the balance sheet.

Start Here to Open a Bank Account

Revenues are the amounts earned from providing goods or services to customers during the period shown in the heading of the income statement. Revenues are the amounts earned before deducting expenses (cost of goods sold, SG&A) and losses. Revenues are sometimes referred to as the top line amount on a company’s income statement. While revenues and earnings are important numbers to describe financial performance, they are by no means the only ones to examine.

Alternatives to Revenues and Earnings

On the balance sheet, net earnings are included as retained earnings in the equity section. Retained earnings for the balance sheet are calculated as beginning retained earnings plus net income minus dividends. On the cash flow statement, the net earnings begin the top line of the operating activities section.

These expenses often go hand-in-hand with the manufacture and distribution of products. For example, a company may pay facilities costs for its corporate headquarters; by selling products, the company hopes to pay its facilities costs and have money left over. Investment income can be a source of income for companies as well as individual investors. A company’s income statement might have a line item that reads investment now hiring tech professionals income or losses, which is where the company reports the portion of net income obtained through investments. Earnings typically refer to after-tax net income, sometimes known as the bottom line or a company’s profits. Earnings are the main determinant of a company’s share price because earnings and the circumstances relating to them can indicate whether the business will be profitable and successful in the long run.

Earnings and revenue are commonly used terms by companies to describe their financial performance over a period of time. Earnings and revenue are two of the most reviewed numbers in a company’s financial statements. Retained earnings are left over profits after accounting for dividends and payouts to investors. If dividends are granted, they are generally given out after the company pays all of its other obligations, so retained earnings are what is left after expenses and distributions are paid. Gross revenue is the total amount of revenue generated after COGS but before any operating and capital expenses. Thus, gross revenue does not consider a company’s ability to manage its operating and capital expenditures.