Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations.
- Revenue is often referred to as the top line because it sits at the top of the income statement.
- The top line refers to a company’s revenues or gross sales. The revenue number is the income a company generates before any expenses are taken out. Therefore, when a company has “top-line growth,” the company is experiencing an increase in gross sales or revenue.
Income or net income is a company’s total earnings or profit. When investors and analysts speak of a company’s income, they’re actually referring to net income or the profit for the company.
- Net income is calculated by taking revenues and subtracting the costs of doing business such as depreciation, interest, taxes, and other expenses.
- Net income appears on a company’s income statement and is an important measure of the profitability of a company.
- Just as revenue is the top line; net income is the bottom line or the “bottom” figure on a company’s income statement.
- More specifically, the bottom line is a company’s income after all expenses have been deducted from revenues. These expenses include 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 referred to as net profits.
- There can exist additional income streams that add to earnings, which can include interest accrued on investments or funds from the sale of physical or intangible assets, such as equipment or bonds.
Example: Apple Inc.
Apple Inc. (AAPL) posted a top-line revenue number of $228.57 billion at the end of their fiscal year on September 30, 2017. The company’s revenue number represented a 6.7% top-line growth rate from the same period a year earlier.
Apple posted $48.35 billion in net income for the same period which represented a 5.8% increase in their bottom line from 2016.
We can see that Apple’s net income is smaller than their total revenue since net income is the result of total revenue minus all of Apple’s expenses for the period. The example above shows how different income is from revenue when referring to a company’s financials.
Bottom line growth and revenue growth can be achieved in various ways. A company like Apple might experience top-line growth due to a new product launch like the new iPhone, a new service, or a new advertising campaign that lead to increased sales which boosted revenue by 6.7% year-on-year. Bottom-line growth might have occurred from the increase in revenues, but also from cutting expenses or finding a cheaper supplier.
The Bottom Line
Income is often considered a synonym for revenue since both terms refer to positive cash flow. However, in a financial context, the term income almost always refers to the bottom line or net income since it represents the total amount of earnings remaining after accounting for all expenses and additional income.
Both revenue and net income are useful in determining the financial strength of a company, but they are not interchangeable. The bottom line or net income describes how efficient a company is with its spending and managing its operating costs. Revenue or the top line, on the other hand, only indicates how effective a company is at generating sales and revenue and does not take into consideration operating efficiencies which could have a dramatic impact on the bottom line.
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