The difference between revenues and earnings
/What is Revenue?
Revenue is the gross amount earned from sales activity. 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 .
What are Earnings?
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.
Related AccountingTools Courses
The Interpretation of Financial Statements
Comparing Revenues and Earnings
The essential difference between revenues and earnings is that revenues are the key indicator of the gross activity reported by a business, while earnings are the net amount left after expenses are subtracted from revenue. Also, revenues appear at the top of the income statement, while earnings appear near the bottom.
Alternatives to Revenues and Earnings
While revenues and earnings are important numbers to describe financial performance, they are by no means the only ones to examine. 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.
Are Earnings Profit or Revenue?
Earnings are the same as profit, and so may appear at the bottom of an income statement instead of the word “profit”. Earnings are revenues minus all expenses, and so should be far smaller than a firm’s reported revenues. Conversely, revenue is positioned at the top of the income statement, and is the sum total of all units sold to customers, multiplied by the prices at which they were sold.
