# Revenue vs Net Income

Published on :

21 Aug, 2024

Blog Author :

N/A

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya

## Differences Between Revenue and Net Income

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

Revenue and net income are related. If you look at a company's income statement, the first thing you would see is the gross revenue/sales. This is the product of the company's number of units 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 to calculate earnings per share.

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

### Example

Let's say we have a 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 sold
• from the Net Revenue, we get the gross profit. Here, the gross profit is = (\$100,000 – \$30,000) = \$70,000.
• From the gross profit, we will deduct the operating expenses. 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).
• From the operating profit, we will deduct the interests and get the profit before taxes (PBT). Here, the PBT would be = (\$50,000 – \$5000) = \$45,000.
• From PBT, we will deduct the taxes and 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.

### 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 revenue 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.

### Conclusion

If you understand how to see an income statement, you will understand the difference between revenue and net income. It may happen that even if the firm has earned revenue, it has no net income. For example, if the net sales 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 loss.

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