Accounting Guide: What’s the Difference Between Net Income & Net Revenue

Accurately assessing your company’s financial health and performance is important for the success of your business. In this regard, it’s critical for every business owner to be able to differentiate between net income and net revenue, as these metrics shine a light on their company’s financial health and performance. In this blog, we will guide you on the difference between Net Income & Net Revenue. Accounting firms in Dubai can further guide you on these key financial metrics. Read ahead for more insights:

What do you mean by net revenue?

You need to know what gross revenue is to understand net revenue. Gross revenue is usually recorded at the top of your company’s income statement, which indicates the amount of money the company made before anything is taken out. Net revenue is a company’s revenue after removing all expenses incurred by the company. Net revenue is used to pay for business operations or the cost of production. Consult with accounting companies in Dubai to clearly understand this key financial metric.

How to calculate the net revenue?

You can calculate the net revenue of your business by subtracting any sales discounts, allowances, returns, and commissions from your gross revenue. For example, you have sold USD 100,000 worth of shoes from your shoe store. However, you had to cut the prices by 30% to make the customers buy the shoes from your store. In this scenario, your net revenue will be USD 70,000.

You can use the difference between your gross revenue and your net revenue to understand how well your marketing and sales methods work. In this example, the big discount you offered indicates that you initially priced the shoes too high. Accounting firms in Dubai can guide you further on this.

Why is it important to calculate the net revenue?

Accurately calculating the net revenue helps businesses to clearly understand the profit margin of their business. This can help you to calculate your business’ net profit, which is the total profit minus further operating expenses. The net revenue makes more sense for e-commerce businesses as it factors in costs after the sale, such as returns, refunds, or even dealing with a customer complaint.

What do you mean by net income?

Net income is the bottom line of the income statement of a business. Net income is the amount which is left of your revenue after you’ve paid off all of your expenses. Net income is used by businesses to calculate their earnings per share. Net income is also known as net earnings but analysts call it the bottom line as it appears at the bottom of the income statement.

How to calculate the net income of a business?

To calculate the net income of your business, you must subtract the cost of goods sold, operating expenses, interest and depreciation charges, taxes, and any miscellaneous expenses from your net revenue. Investors must review the numbers they use to calculate the net income as expenses can be hidden in accounting methods, or revenues can be inflated. Let’s revisit the example of the shoe store. Your net revenue was USD 70,000 but you have spent USD 25,000 on running the business.

In this case, your business’s net income would be USD 45,000. Moreover, if you have invested USD 150,000 in the business, your return on investment (your net profit divided by the amount of your investment) will be nearly 30%. Accounting companies in Dubai can help you with the calculation of net income.

Why is it important to calculate the net income?

If you run a company, the net income will inform you how profitable your business is and what expenses you can cut back. It essentially communicates the true cost of running your company. Investors also watch a company’s net income closely as the ability of a company to make a profit will have an effect on its stock price. They use the net income to determine the true value of a company’s stock.

Hire the best Accounting & Bookkeeping Firms in Dubai

Small business owners must analyse their net revenue vs. net income to determine whether their business is providing a good return on their money as well as paying them a good salary. However, you need the help of an accountant to accurately calculate net revenue and net income. It would be cost-effective and more efficient to outsource your requirement to accounting firms in Dubai instead of hiring an in-house accounting professional.

JCA’s accounting services in Dubai can make a big difference to your business as we have more than 20 years of experience and expertise in the field. We can add value to your business as JCA has worked with companies of all sizes and all industries. Apart from providing accounting & bookkeeping services in Dubai, JCA helps companies meet key compliance requirements related to the UAE corporate tax, Value Added Tax (VAT), Economic Substance Regulations (ESR), Anti-Money Laundering (AML) and Ultimate Beneficial Ownership (UBO). Hire us and propel your company to greater heights.