A company reporting "top-line growth" is thus experiencing an increase in gross sales or revenue.
In comparison, sales are the proceeds a company generates from selling goods or services to its customers:
- In accounting terms, sales comprise one component of a company's revenue figure.
- On an income statement, sales are typically referred to as “gross sales.”
- A company may also report "net sales," which is the result of subtracting any returned merchandise from gross sales. Retail companies tend to report net sales as well as revenue.
- Revenue is the income a company generates before any expenses are subtracted from the calculation.
- Revenue is referred to as the “top line” number since it sits at the top of the income statement.
- Sales are the proceeds a company generates from selling goods or services to its customers.
- Companies may post revenue that's higher than the sales-only figures, given the supplementary income sources.
Understanding How Sales and Revenue Can Differ
Some companies inaccurately use the term "sales" and "revenue" interchangeably. However, while sales might be considered to be revenue, all revenue doesn’t necessarily derive from sales. Consider the following financial data from Exxon Mobil Corporation's (XOM) income statement for the quarter ending June 30, 2019:
- Sales and operating revenues were roughly $67.5 billion for June 2019 versus $71.5 billion for June 2018.
- Total revenue was $69 billion for the quarter ending June 2019 and $73.5 billion for the same period in 2018.
- However, there were income sources other than sales proceeds—from equity affiliates and other income–totaling more than $1.5 billion in 2019 and $2 billion in 2018.
OAs a result, companies may post revenue that's higher than the sales-only figures, given the supplementary income sources.
Oil and gas companies commonly generate income from the sale of assets, during time periods when they’re cash poor. Other non-operating revenue gains may come from occasional events, such as investment windfalls, money awarded through litigation, interest, royalties, fees, and donations. Regardless of the source, these sporadic gains indicate a company’s total cash flow.
Sales Can Exceed Revenue
Sales may be defined as prices paid by customers, while revenue signals the overall money a business generates during a given time period. Although revenue is nearly always the larger figure, it may occasionally be smaller than sales.
Take, for example, a business that only sells hats, with no other inventory on its shelves. If the store's revenue formula deducts any discounted sales, returns or damaged merchandise, the company's gross sales could theoretically shake out to be larger than its revenue.
Revenue can also be used to describe money a government collects from taxes, fees, fines, and publicly-operated services. However, while government agencies may sell goods or services, the proceeds from these activities are seldom referred to as “government sales.”
The Bottom Line
Whether it's sales, gross sales, net sales, or revenue, it’s critical to consider the industry in question, when analyzing a company’s financial data. It’s also important to distinguish between sales and revenue, because some revenue sources may be one-off events.