Revenue vs Net Income

Differences Between Revenue and Net Income

Revenue refers to the sum of money which the company generates from doing the business in the normal course of operations from its customers whereas net income refers to the income earned by the company or the income left over in the company after deducting all the expenses of the period from the net revenue.

Revenue and net income are related. If you look at the income statementIncome StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more of a company, the first thing you would see is the gross revenue/sales. This is the product of the number of units the company sold during that year and the selling price per unit. If we deduct the sales discount or/and sales return from the gross sales, we get the net sales/revenue. On the other hand, net income is almost the last item on the income statement if there’s no requirement of calculating earnings per share.

The net revenue is what a company earns as a whole and the net income that the company is left with after bearing all the expenses and adding other sources of income.

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Source: Revenue vs Net Income (wallstreetmojo.com)

Example

Let’s say that we have the Gross Revenue of $110,000 with a sales discount of $10,000. And we have the cost of goods sold of $30,000, operating expenses of $20,000, interests of $5000, and the taxes of $15,000. Find out the net income.

Let’s say how it works.

• The first step is to calculate Net Revenue = Gross Revenue – Sales Discount = $110,000 – $10,000 = $100,000
• When we deduct the costs of goods soldCosts Of Goods SoldThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. read more from the Net Revenue, we get the gross profitGross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more. Here, the gross profit is = ($100,000 – $30,000) = $70,000.
• From the gross profit, we will deduct the operating expensesOperating ExpensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more. And we will get the operating profit. Here, the operating profit is = ($70,000 – $20,000) = $50,000. This is also called EBIT (Earnings before interests and taxes)Earnings Before Interests And Taxes)Earnings before interest and tax (EBIT) refers to the company's operating profit that is acquired after deducting all the expenses except the interest and tax expenses from the revenue. It denotes the organization's profit from business operations while excluding all taxes and costs of capital.read more.
• From the operating profit, we will deduct the interests, and we will get the profit before taxes (PBTPBTProfit before tax (PBT) is a line item in a company's income statement that measures profits earned after accounting for operating expenses like COGS, SG&A, depreciation & amortization, and non-operating expenses. It gives the overall profitability and performance of the company before making payments in corporate taxes.read more). Here, the PBT would be = ($50,000 – $5000) = $45,000.
• From PBT, we will deduct the taxes, and we will PAT (profits after taxes), which we also call the net income. Here, the net income is = ($45,000 – $15,000) = $30,000.
• If we do a percentage calculation between the net sales and the net income, we will get that the net income is ($30,000/$100,000 * 100) = 30% of the net sales or the net revenue.

Revenue vs. Net Income Infographics

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Key Differences

• The main difference is the revenue consists of all the expenses and incomes; whereas, the net income consists of only the difference between the revenue and the expenses.
• Net revenueNet RevenueNet revenue refers to a company's sales realization acquired after deducting all the directly related selling expenses such as discount, return and other such costs from the gross sales revenue it generated.read more is the third item on an income statement. The net income is the last item on an income statement.
• The revenue is the superset of the net income. On the other hand, the net income is the subset of the net income.
• The revenue is always more than the net income. The net income is always lower than the revenue.
• The revenue isn’t dependent on the net income. The net income is dependent on the revenue. If there’s no revenue, there would be no net income.

Revenue vs. Net Income Comparative Table

Basis for comparison	Revenue (Net Sales)	Net Income
Meaning	We get net sales by deducting the sale return/discount from the gross salesGross SalesGross Sales, also called Top-Line Sales of a Company, refers to the total sales amount earned over a given period, excluding returns, allowances, rebates, & any other discount. read moreGross Sales, also called Top-Line Sales of a Company, refers to the total sales amount earned over a given period, excluding returns, allowances, rebates, & any other discount. read moreGross Sales, also called Top-Line Sales of a Company, refers to the total sales amount earned over a given period, excluding returns, allowances, rebates, & any other discount. read more.	We get net income by deducting all the expenses from the net sales.
Position in an income statement	It stands as a third item in an income statement.	If EPS doesn’t need to be computed, net income stands as the last item in an income statement.
Dependence	It is not dependent on net income.	It is completely dependent on the revenue. Without revenue, there can be a net loss. But without revenue, we can’t compute the net income.
Subset	It is the superset of the net income.	It is the subset of the revenue.
More/Less	It is always more than the net income.	It is always less than revenue.

Conclusion

If you understand how to see an income statement, you will be able to understand the difference between revenue and net income. It may happen that even if the firm has earned revenue, but it has no net income. If the net salesThe Net SalesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company's gross sales.read more and the expenses for a year are similar, there would be no net income. Or if the expenses are more than the net sales, there would be no net income; rather, it would be a net lossNet LossNet loss or net operating loss refers to the excess of the expenses incurred over the income generated in a given accounting period. It is evaluated as the difference between revenues and expenses and recorded as a liability in the balance sheet.read more.

Recommended Articles

This has been a guide to Revenue vs. Net Income. Here we discuss the top differences between revenue and net income with Infographics and comparison table. You may also have a look at the following articles –

• Operating Income vs. Net Income – Differences
• Gross Income vs. Net Income
• Profit vs. Revenue
• Earnings vs. Revenue