Revenue vs Earnings

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Difference Between Revenue and Earnings

The key difference between Revenue and Earnings is that revenue refers to the amount generated by any business entity by selling its goods or providing its services during the normal course of its operations before deducting the expenses. In contrast, earnings refer to the earnings generated by any business entity after deducting the cost and expenses incurred during the period.

Revenue is also synonymous with income, which a firm generates from its daily business activities. In simple terms, revenue is a business's income when it provides a service or product to a consumer.

On the other hand, earnings are the inflow of money after all the expenses, i.e., profit from a business in its daily operations. It is the amount a business earns from their day to day activities. It can be achieved by a product sold or a service availed by a customer.

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Revenue-vs-Earnings

Formula

  • Revenue is calculated as the number of units of goods (or products) sold * per unit.
  • Earnings are the amount remaining after taking out the expenses or the amount of depreciation of the underlying asset.

It can also be stated that Revenue – Expenses = Earnings; assuming the expenses are less than revenues, the company will have a profit.

It can also be derived that if expenses are more than revenue, there will be a net loss, which a company may have to suffer.

Revenue vs. Earnings Video Explanation

 

Revenue vs. Earnings Infographics

Revenue vs Earnings Infographics

Key Differences

  • Revenue is the firm's ability to generate income and earn better returns. On the other hand, earning is the firm's profit from daily business activities.
  • Revenue is related to the top line of the company. Earning is associated with the bottom line profits of the company.
  • Revenue can be calculated by multiplying units by the price per unit. Earnings can be calculated as the difference between revenue and expenses, taxes, depreciation expense, or interest paid.
  • Revenue denotes the operating income. Earning, on the other hand, denotes financial profitability.
  • Revenue is of lower preference; however, it does help to identify the profitability of the firm. Earning is given much higher preference by companies as it is an inflow to the firm and adds to its profitability.

Comparative Table

Basis for ComparisonRevenueEarnings
1. MeaningIncome generated from a business when a service or a product is sold;The bottom line profit after excluding the expenses of a business from their business activities or operations;
2. What it’s all about?It’s about the income of the firm.It’s about the profit that a firm makes.
3. MeasurementRevenue measures the income generation of business.Earnings measure the profit of a business.
4. CalculationBy multiplying no. of units to the price per unit;Revenue minus the expenses, taxes, or amortization;
5. ImpactWhen the degree of revenue is medium, it depicts more income and inflow for the firm and vice versa.When the degree of earnings is higher, it depicts more profit or gains for the firm and vice versa.
6. In relation withThe degree of revenue is usually medium, as it does not account for expenses in the income statement.Earning has a direct relationship with the profit and cash gains in the income statement.
7. How much is its preference?The preference is lower.The preference is much higher.

Final Thoughts

Revenue and Earnings are both important in their respective terms. And they both are related to the company’s inflow of cash or liquidity, which helps the company decide whether it has gains or losses after calculating the net income and net earnings.

For instance, there is a pharmaceutical store, and you were to define the revenue and earnings for the store. Revenue is what you get from people buying medicines from the store. Whereas earnings are the profit you derive after reducing all the costs (expenses and taxes) involved in purchasing those medicines and eventually generating income.

So the question for a firm is, are the revenue and earnings the same? The answer is 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.