Revenue vs. Earnings: What’s the Difference?

Revenue vs. Earnings: An Overview

Revenue and earnings are two of the most closely watched numbers in a company’s quarterly and annual financial statements.

• Revenue is the total income earned by a company for selling its products and services.
• Earnings are revenues minus all expenses associated with operating the business.

Both of these numbers can tell investors and analysts a good deal about a company’s profitability and help them evaluate a company’s investment potential.

Key Takeaways

• Revenue is the total amount of money a company brings in from its business activities.
• Revenue is called the “top line” number because companies list it at the top of their income statement.
• Revenue is the income a company generates before deducting expenses.
• The earnings number indicates the profit that the company has earned; it is calculated by subtracting expenses, interest, and tax payments from revenue.
• Earnings are “the bottom line.”

Revenue

Companies usually report their revenue on a quarterly and annual basis in their financial statements. A company’s financial statement includes its balance sheet, income statement, and cash flow statement.

Revenue is the income generated before expenses are deducted. It is the total amount of money earned by a company for selling its goods and services in the period being reported.

Revenue is called the top line because it sits at the top of a company’s income statement, which also refers to a company’s gross sales. Revenue is also called net sales for some companies since net sales include any returns of merchandise by customers.

Many analysts use the terms revenue and sales interchangeably.

Earnings

Earnings reflect the bottom line on the income statement and are the profit a company has earned for the period being reported. The earnings figure is listed as net income on the income statement. 

When investors and analysts talk about a company’s earnings, they’re talking about the company’s net income or profit.

Important

Effectively managing costs against revenues will determine whether a company will have positive earnings (a profit) or a loss.

Companies calculate net income or earnings by subtracting the costs of doing business from total revenue. This includes factors like depreciation, interest charges paid on loans, general and administrative costs, income taxes, and operating expenses such as rent, utilities, and payroll.

A company’s bottom line is also called net profit.

Special Considerations

Based on revenue alone, a company could appear to be financially successful even if it’s not. A company’s management will frequently tout its growing revenue when discussing its prospects. However, revenue alone does not paint a complete picture of a company’s financial health.

If a company’s revenue is greater than its expenses, it will show a profit. If its expenses are greater than its revenue, it’s operating at a loss.

A company’s financial statements could show revenues that are growing quarter-over-quarter or year-over-year, but the company could still be in financial trouble if its expenses continue to outstrip its revenue.

That’s why reviewing a company’s earnings—which deducts expenses from revenue—is key to evaluating the long-term sustainability of a company.

Revenue vs. Earnings Example 

Below is the income statement for Apple Inc. as of the end of the fiscal year in 2022 from the company’s 10-K statement.

Apple Inc. (AAPL) posted a net sales number of $394,328 billion for the period, representing an increase of over $28 billion when compared to the same period a year earlier.

After recording revenue, Apple needs to deduct all expenses associated with running the business. This includes deducting from revenue cost of sales, operating expenses, other expenses, and provisions for income taxes.

All these costs reduce revenues to arrive at net income (earnings). Apple posted $99,803 billion in net income (earnings) for 2022 (a $5 billion increase from the same period in 2021). 

Can Earnings Be Higher Than Revenue?

In general, earnings can’t be higher than revenue, since earnings are the total income of the business minus the costs of doing business.

There are rare exceptions. Say the business received a big one-time payment for the sale of an investment property. (That is, the transaction is not strictly revenue from the core business.) The payment might be big enough to skew the earnings number higher than the revenue number.

Are Earnings Profit or Revenue?

Earnings are always profit, never revenue. Revenue represents the value of goods or services a company sold at the retail price. Earnings, also known as profit, represent revenue minus all of the costs associated with running the business: costs of sales and operating expenses, for example.

What Is EPS?

Earnings per share (EPS) is calculated as a company’s net profit divided by the number of common shares that it has outstanding. The number indicates how much money a company is earning on each share of its stock.

Investors and analysts watch a company’s EPS closely because it is an indicator of the real profitability of the company.

The Bottom Line

Revenue tracks the total amount of money that a company is bringing in, but earnings reflect the portion of the revenue the company keeps in profit after expenses are paid.

Revenue and earnings are among the most straightforward numbers that an investor can use to understand the real level of success that a company has achieved.

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