When a company is said to have “top-line growth,” it means the company’s revenue—the money it’s taking in—is growing. Overall, earnings are the net value a company has achieved from operating activities for a specific reporting period. Companies also portray their net earnings by dividing it over shares outstanding when identifying the earnings per share (EPS) value.

• 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.
• A company with a high P/E ratio relative to its industry peers may be considered overvalued.
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• Income is calculated after deducting all expenses from total revenue.
• It is also commonly used in relative valuation measures such as the price-to-earnings ratio (P/E).

Revenue or net sales refer only to business-related income (the equivalent of earned income for an individual). If a company has other sources of income—for example, from investments—that income is not considered revenue since it wasn’t the result of the primary income-generating activity. Any such additional income is accounted for separately on balance sheets and financial statements. Net profit is calculated from the final section of an income statement. It is the result of operating profit minus interest and taxes, with interest and taxes being the last two factors to influence a company’s total earnings. Net profit is used in the calculation of net profit margin, which gives the final portrayal of how much a company is earning per dollar of sales.

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Earnings before interest and taxes (EBIT) and operating income are sometimes used interchangeably, but they are not the same. While operating income equals revenue minus operating expenses, EBIT also subtracts the cost of goods sold (COGS). Gross profit and operating profit are terms used to analyze the first two segments of a company’s income statement. The net earnings of a company theoretically reflect an accounting value for a specific period. After the net earnings are calculated, this value flows through to the balance sheet and cash flow statement. Retained earnings is the residual value of a company after its expenses have been paid and dividends issued to shareholders.

For example, cash flow is a better measure of the long-term viability of a business than earnings. Also, several non-financial metrics are quite telling, such as customer turnover and the rate of product returns, to gain a better feel for the health of a business. Gross income is a line item that is sometimes included in a company’s income statement but is not required. It is also commonly used in relative valuation measures such as the price-to-earnings ratio (P/E). The price-to-earnings ratio, calculated as share price divided by earnings per share, is primarily used to find relative values for the earnings of companies in the same industry.

Retained Earnings

Operating income helps investors separate out the earnings for the company’s operating performance by excluding interest and taxes. Revenue is the total income earned by a company for selling its goods and services. Revenue is called the top line because it sits at the top of the income statement, which also refers to a company’s gross sales.

How do gross profit and net income differ?

Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations. Revenue, also known as gross sales, is often referred to as the “top line” because it sits at the top of the income statement. When investors and analysts speak of a company’s income, they’re actually referring to net income or the profit for the company. In the context of business operations, income is the amount of money a company retains internally after paying all expenses and taxes. Similar to revenue, net income appears on the company’s income statement.

What’s the Difference Between Revenue and Income?

Direct costs are expenses specifically related to the cost of producing goods and services—things like parts, raw materials, utility bills, direct labor, and commissions or professional fees. Indirect costs are expenses that aren’t directly related to manufacturing or buying goods for resale. Examples include salaries and benefits, factory equipment (depreciation and maintenance), rent, and certain utilities. Shareholder equity is the amount invested in a business by those who hold company shares—shareholders are a public company’s owners. Revenue and retained earnings are correlated since a portion of revenue ultimately becomes net income and later retained earnings.

What is revenue?

Moreover, many items on the income statement and balance sheet are forecasted based on revenue growth assumptions. Measures of income which are widely used include gross profit, which is equal to revenue minus cost of goods sold (COGS), and operating income, which is equal to gross profit minus operating expenses. In simpler terms, it’s what remains after deducting all expenses from the total unlevered free cash revenue. Thus, income and earnings can also be synonymous sometimes, as earnings are the income generated by a company after deducting all expenses. Earnings, by contrast, reflect the bottom line on the income statement and are the profit a company has earned for a period. When investors and analysts speak of a company’s earnings, they’re talking about the company’s net income or profit.

However, it can be affected by a company’s ability to competitively price products and manufacture its offerings. Revenue on the income statement is often a focus for many stakeholders, but the impact of a company’s revenues affects the balance sheet. If the company makes cash sales, a company’s balance sheet reflects higher cash balances. Companies that invoice their sales for payment at a later date will report this revenue as accounts receivable. Termed as “the bottom line,” earnings represent what remains after all expenses, taxes, and other costs are deducted from revenue. Earnings, by contrast, reflect to the bottom line on the income statement and is the profit a company has earned for a period.