Revenue vs Retained Earnings: What’s the Difference?

As a result, it is often referred to as the top-line number when describing a company’s financial performance. Since revenue is the income earned by a company, it is the income generated before the cost of goods sold (COGS), operating expenses, capital costs, and taxes are deducted. Earnings are the residual amount left after revenues have been reduced by all expenses, such as the cost of goods sold and operating expenses. If the volume of expenses exceeds revenues, then there will be no earnings at all – just losses. Earnings give the reader a good idea of how efficiently management is operating the business, as well as how well its products are positioned to appeal to customers. The total earnings figure in each reporting period is stated near the bottom of the income statement.

Examples of business revenue sources can vary depending on the industry and business model. In the retail sector, revenue is accrued from the sale of goods to customers, while in the service industry, revenue is generated from providing services to clients. A company’s revenue and its operating income can end up as two very different numbers. Understanding the relationship between your company’s revenue and income gives a true picture of your business’s standing and allows you to analyze where you can improve.

We hope it has helped your understanding of accounting and financial reporting. If a company sells a product to a customer and the customer goes bankrupt, the company technically still reports that sale as revenue. Therefore, revenue is only useful in determining cash flow when considering the company’s ability to turnover its inventory and collect its receivables.


Remember, a holistic examination of a company’s financials is always the bedrock of a sound investment strategy. Although both metrics play a vital role, income is often considered more significant than revenue since it represents a business’s profit. The state of the economy, level of competition, and consumer behavior can significantly tips for rashid players in street fighter v impact the revenue and income of a business. For instance, during a recession, consumers may reduce their spending, which leads to decreased revenue and income for businesses that rely on discretionary spending. Various factors can affect the revenue and income of a business, some of which are beyond the company’s control.

Operational efficiency can have a significant effect on revenue and income. Lean manufacturing practices, or investment in technology, streamline business operations, reduce costs, and increase profitability. Aside from the points mentioned earlier, revenue and income are significant for investors and stakeholders in a business.

  • Earnings per share (EPS) is a commonly cited ratio used to show the company’s profitability on a per-share basis and is calculated by dividing the company’s total earnings by the number of shares outstanding.
  • Revenue is the total amount of money a company generates in the course of its normal business operations.
  • Walmart was officially the world’s highest-earning company in terms of revenue in the year 2018, with $515 billion in total revenue.
  • Due to this reason, net income can be frequently referred to as the bottom line.

Retained earnings are then carried over to the balance sheet, reported under shareholder’s equity. It is calculated by subtracting all the costs of doing business from a company’s revenue. Those costs may include COGS and operating expenses such as mortgage payments, rent, utilities, payroll, and general costs.

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Apple’s revenue comes from iPhones, iMacs, and other devices and services sold by the company. Revenue is often called the top line because it’s located at the top of an income statement. When a company is said to have “top-line growth,” it means the company’s revenue—the money it’s taking in—is growing. Operating profit is the company’s profit calculated after taking out the expenses but before accounting for the taxes, debt, and costs of certain one-off items. Net income, on the other hand, is the company’s profit after accounting for all the expenses.

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The optimal gross profit margin varies between companies based on the type of goods/service they sell and the cost to produce/provide it. When a corporation’s stock is publicly-traded, the amount of earnings must also be shown on the income statement as earnings per share (EPS) of common stock. In addition to considering revenue, it is impacted by the company’s cost of goods sold, operating expenses, taxes, interest, depreciation, and other costs.

More specifically, revenues are the fees generated from the sale of goods and services, prior to the deduction of any expenses. They give the financial statement reader a good idea of the overall activity level of a business. The total revenue figure in each reporting period is stated at the top of the income statement. As the JCPenney example illustrates, the difference between revenue and operating income shows why analyzing financial statements can be challenging. It’s always prudent (and recommended) to consider multiple metrics to determine a company’s profitability before making any investment decisions.

Calculating Retained Earnings

Depending on the type of business, operating revenue can be generated from the provision of services or sales of products. Beyond month-on-month forecasting, a revenue-oriented approach to a company’s financial reporting won’t tell you much about your company’s long-term outlook. Investors and stakeholders closely scrutinize a company’s revenue and earnings to assess its potential for growth and profitability.

Companies trading at higher PE ratios are expected to have higher growth when compared to their peers with lower PE multiples. Hence, the former attracts growth investors while the latter attracts value investors. In economics, greater income inequality increases the economic growth of developing countries, whereas it decreases the development of high-income and middle-income countries.

Differentiate your offerings by providing additional value to customers. You might want to include after-sales support, extended warranties, or exclusive access to premium features. Embrace automation and digital tools to streamline operations and reduce manual errors.

Similarly, an increase in revenue could be as a result of reduced expenses such as finding a cheaper supplier. Income is referred to as the company’s bottom line because it provides a full picture of cash flow. It is likely that the term “bottom line” was coined as a result of net income sitting at the bottom of income statements. 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.

Investors are unlikely to be moved by reports of vast revenue growth; it’s profit that they’ll be getting a portion of and profit they’ll care most about. For the top line, ensure that all revenue streams have been accounted for, including any direct investment into the company since the release of your last statement. Provide training programs to enhance employees’ expertise and efficiency. It can contribute to higher productivity, reduced errors, and increased customer satisfaction. Enhance customer satisfaction and loyalty through exceptional customer service, personalized experiences, and loyalty programs. Companies should establish robust systems and processes to accurately track and report revenue and expenses.Maintain accurate and transparent financial records to reflect revenue and expenses.

The basic meaning of income is the amount of money an individual or an organization receives for selling goods, providing services, or investing capital. For example, as an employee in a company, income is the wage the individual earns for work rendered. Additionally, they may earn a side income from an investment portfolio of financial assets (e.g., stocks, bonds, etc.). Note that the tax regulations regarding income types may vary among tax jurisdictions. Income, revenue, and earnings are probably the three most widely used concepts in accounting and finance.


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