Revenue vs. Net Income: What's the Simple Difference?

When you first start looking at a company's finances, you'll see two terms over and over: Revenue and Net Income.

People often use them interchangeably, but they mean two very different things. Understanding this difference is the key to knowing if a company is actually healthy.

Here’s the simple version:

• Revenue is the total amount of money a company brings in from sales.
• Net Income is the profit that's left after all the bills are paid.

This is why you'll hear them called by their famous nicknames: Revenue is the "Top Line" and Net Income is the "Bottom Line."

The Lemonade Stand Analogy

The easiest way to understand this is to imagine you're running a lemonade stand for one day.

1. Calculating Your Revenue (The "Top Line")

All day long, you sell lemonade. At the end of the day, you count all the money in your cash box.

You sold 100 cups of lemonade at $2 each.

Total Sales: $200

This $200 is your Revenue. It’s the "top line" on your piece of paper because it's the first number you write down. It’s the total amount of money you generated.

2. Calculating Your Net Income (The "Bottom Line")

But, of course, you had to spend money to make that $200. You had costs.

Let's add them up:

• Lemons: $30
• Sugar: $20
• Cups: $10
• Poster for advertising: $5
• Tax (a "stand permit" from your parents): $5

Total Costs & Expenses: $70

Now, you do the most important math:

$200 (Revenue) - $70 (All Costs) = $130

This $130 is your Net Income, also known as your profit. It’s the "bottom line" on your paper. It's the money you actually get to keep.

Why This Matters for Investors

This simple concept is everything when you look at a real company.

• Revenue (Top Line): This number tells you how big a company is and if it's growing. Are more people buying its lemonade? High revenue is great, but it doesn't tell the whole story.
• Net Income (Bottom Line): This number tells you if the company is efficient and profitable. Does it know how to control its costs?

The biggest trap for new investors is finding a company with high revenue but negative net income. This means that, just like a bad lemonade stand, the company is spending more money than it's making. It's selling a lot but losing money on every sale.

A healthy company is one that can grow its revenue (sell more lemonade) while also growing its net income (get better at controlling the cost of sugar and lemons).

Head-to-Head: The Simple Breakdown

When you're researching a stock, don't just look at one. Always look at both.