Revenue in comparison to. Earnings: A Review
Revenue vs Earnings are typically used by businesses to define the company’s finances over a certain period of time. Earnings and revenues are among the most frequently analyzed numbers in the financial statements of a company.
Analysts and investors utilize these numbers to determine the company’s financial performance and assess the investment potential of a company. In this article, we will examine the difference between revenue and earnings and provide an example of both shown in a real balance sheet.
Revenue Revenueis the sum of money that an organization for selling its products and services. Many analysts employ the terms sales and revenue interchangeably. Companies typically report their revenues annually and on a quarterly schedule in their annual financial reports. The financial statement of a business includes its income statement, balance sheet and cash flow statements.
The term “revenue” is used to describe the top line since it’s the highest line of an organization’s financial statement that is also a reference to the business’s total sales. Revenue is the revenue that is earned prior to the deduction of expenses. Also, it is referred to as net sales in some businesses because net sales comprise products returned from customers.
Earnings however represent what is the top of the line in the statement of income. They are the amount of profit that a business has made over a time. The earnings figure is reported in income statements as net profit. When analysts and investors talk about earnings for a company they’re referring to the net income of the business or profits.
Companies are able to calculate the amount of their net earnings which is the amount they earn by subtracting their revenues from the cost of doing business, like depreciation and interest costs on loans general and administrative expenses as well as income tax, operating expenses like rent utility bills, payroll, and rent. The bottom line for a business is often referred to as net profit..
Based solely on its revenue an organization could look financially prosperous. The company’s management may highlight its growth in revenues when discussing the future of its business but revenue alone doesn’t provide a complete picture of the company’s financial condition.
It is also important to take into account the costs that the business incurred to earn its profits. If the company’s revenues are more that its expenditures, then it will be profitable. In contrast when a company’s costs exceed its revenues then they’re operating at losing money.
Even though a company’s financials may show that revenues are increasing quarter-over-quarter or year-overyear but the business may be in trouble financially when its expenses continue to outstrip revenues. This is why analyzing the earnings of a company, which deducts expenses from revenue — is essential in assessing the long-term viability of a business.
Revenue in comparison to. Earnings Example
The following is the earnings report for Apple Inc. as of the close of the fiscal year 2021, derived taken from Apple’s 10-K statement. 1
Apple Inc. (AAPL) posted a net revenue in the range of $366 billion $366 billionfor the quarter. The company’s revenue figure was an increase of 33% in the top line percentage from the same time one year prior. 1
After recording the revenue, Apple needs to deduct the costs associated with managing the company. This includes deducting from the revenue costs for sales as well as operating costs Other expenses, as well as allowances for income tax.
These costs all reduce revenue and result in the net profit (earnings). Apple recorded $95 billion of earnings (earnings) for 2021 which is an increase of 65% from the same period in the year 2020.
How can earnings be higher than Revenue?
In generally, earnings won’t exceed revenue since revenue is the sum of all of the sales made by an organization. Earnings are the result of revenue less all associated costs, and are the total cash that the company takes home. If the earnings are greater than revenue it is likely that the company earned income from a different source, typically in one-off transactions, like an investment. This isn’t associated with operating income.Revenue vs Earnings
Are Earnings Revenue or Profit?
Earnings are always profitand not revenue. Revenue refers to the value of the products or services that which a business sells at retail price. Earnings, also referred to as profits, are the income minus all expenses that are associated with running a company, such as the costs of selling and operating expenses, like.
What is What is EPS?
The term “EPS” means the earnings of a share. It is a ratio of financial value employed in the analysis of investments. EPS is calculated by dividing net profit by the amount of common shares an organization has outstanding. The figure represents the amount of profit a company can earn for each share of stock.
The Bottom Line
The distinction between earnings and revenue is that, while revenue measures the total amount that is generated through sales, earnings represent the amount of earnings that the company retains in profit after each cost is paid.Revenue vs Earnings
While it is important that investors review the earnings and revenue of a company prior to making an investment choice but there are also other measures that investors can utilize to analyze their investment. For instance, knowing some of the key financial ratios that are related to the company’s financial performance as well as liquidity, solvency and value will help investors determine possible investments.