Investor Education
REVENUE AND EARNINGS : COMPARISON
REVENUE AND EARNINGS : COMPARISON
The prime difference between earnings and revenue is that revenue refers to the amount generated by a business entity by selling their goods or by providing their services during the normal course of its operations before deduction the expenses, whereas, the earnings refers to the earnings generated by any business entity after deducting the cost and expenses incurred during the period.
Revenue is also an identical word with income, which is what an entity generated from their daily business activities. In simple terms, revenue is the income a business generates when it provides a product or service to a consumer.
Earnings on the other hand are the inflow of money after all the expenses i.e. profit from a business in their daily operations. It is the amount earned by a business from their daily activities. It can be achieved by a product sold or a service availed by a customer.
Revenue is calculated as the number of units of goods or products sold price per unit. Earnings are the amount remaining after taking out the expenses or the amount of depreciation of the asset underlying.
It can also be stated that revenue - expenses will be equal to earnings, assuming the expenses are less than the revenue in totality, the company will have a profit.
PRIME DIFFERENCES
- Revenue is related to the top line of the statement of the company. Earnings are associated with the bottom line profits of the entity.
- Revenue is the ability of the firm to generate income and to earn better returns. On the other hand, earnings are the profit of the firm by doing daily business activities.
- Revenue can be computed by multiplying the number of units to the price per unit. Earnings can be computed as the difference between total revenue and expenses, taxes, depreciation and interest paid.
- Revenue is of lower preference. Nevertheless, it does help to identify the profitability of the company. Earning is given much higher preference by companies as it is an inflow to the firm and adds to the profitability of the company.
- Revenue refers to the operating income. On the other hand, earnings denote profitability financially.
COMPARISON TABLE
| BASIS | REVENUE | EARNINGS |
| What is it about? | Income of the company | Profit made by the company |
| Measurement | Revenue measures the income generation of business | It measures the profit of the company |
| Calculation | By multiplying number of units to the price per unit | Revenue minus the taxes, expenses, interest etc. |
| Impact | When the revenue is medium, it depicts more income and inflow for the firm and vice versa. | When the degree of earning is high, it denotes profits for the company and vice versa |
| Preference | Lower | Higher |
| Relation | The degree of revenue is usually medium, as it does not account for expenses in the income statement. | Earning has a direct relationship with the cash gains and profits in the income statement. |
THE CRUX
Earnings and Revenue are both significant in their respective considerations. And they both are related to the company’s inflow of liquidity or cash which assists the company to decide whether the company has gains or losses after calculating the net income and net earnings.
For example, there is an FMCG store and you were to define the revenue and earnings for the store. Revenue is what you get from customers buying goods from your store. Whereas, earnings are the profit that you derive after reducing all the expenses and taxes (cost) involved to purchase those goods and eventually generate income.
So the query for a company is easy, are the revenue and earnings identical or same? The answer is a clear No. Using them is the most basic way to know and improve the money inflow of the company during a particular period and define the top and bottom line of the company.