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Comment by kqr | Hacker News Reader

> Divide a company's income by its revenue

If I'm a person who believes income is the same thing as revenue, how would you explain this division to me in a way I'd understand? Or does "income" in this case mean "profit"?

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Revenue is what you sell your product for.

Income is what you sit with after all the expenses and taxes have been deducted from the retail price.

Let's say you create some product, XYZ, which takes you exactly 5 hours to make. The materials to make the product costs you $50, the salary costs $100 ($20/hr * 5 hours), the shop costs (rent, utilities, etc.) costs roughly $5 pr product. And the things involved in selling your product (marketing, etc.) costs you $45 pr. product.

So in order to break even, you need to charge $50 + $100 + $5 + $45 = $200

You decide to sell the product for $250.

So before taxes you've earned $250 - $200 = $50

And let's say you have to pay 10% taxes on that, so 10% off $50 = $5

Your shop is left with $45 for each product they sell. Or you have $45 in income.

Your operating margins would be $45 / $250 = 18%

I believe that for operating income which would be used to calculate operating margin, taxes are not yet deducted.

> Income is what you sit with after all the expenses and taxes have been deducted from the retail price.

That’s the net income. That word is doing a job there!

> Your operating margins would be $45 / $250 = 18%

No, that’s the profit margin or net margin.

Income is closer to profit than you're thinking.

There is gross income, which is roughly sales (revenue) minus the direct costs of those sales. There is net income, which is the money left over after also accounting for other costs, like fixed overheads and marketing.

The operative word should have been ‘operating’ income, which is revenue - operating expenses - cost of goods sold

Some terms as defined in an accounting course I took once (U.S. based).

Revenue = The total value of goods or services a company sells during a particular accounting period.

Gross Margin = The difference between revenue and the cost of goods sold. Also called Gross Profit.

Net Income = A corporation’s net earnings or “bottom line.” Net income is the residual of revenues after cost of goods sold, operating expenses, depreciation, interest, and taxes are considered.

Operating Expense = Expenses incurred in conducting normal business operations. Operating expenses may include wages and salaries, employee benefits, administrative expenses, research and development costs, and other similar expenses.

> Income is a company's total earnings after all expenses and earnings that aren't counted as revenue are deducted.

I found different definitions, but it seems net profit = net income.

You need to deduct Cost Of Goods and Services, or COGS, from revenue in order to determine income. Then you have other things like taxes and depreciation, then you get profit.

This is not correct. Your calculation gives gross margin. However, gross margin doesn't account for all the other operating expenses associated with running a business. If you also include those, you get operating profit. Finally, if you then also account for values (negative and positive) associated with financing, investing, and taxes, you get to to net income. Net income is "the bottom line". It is what is generally referred to as "profit" by investors. And, its not the same thing as positive, neutral, or negative cash flows.

Despite my career in accountancy,including at global companies, and despite the definitions in all the comments below that disagree with you, I have never heard anyone in the real world describe Operating Profit as income. I have heard small business owners describe revenue as income. I agree with you, income was a terrible choice of word for this article.

The next line makes it clear:

> For some volume of sales that comes into the business, it gives an idea of what percentage is left as cash in the end.

I stumbled over this sentence in the same way. And drew the same conclusion: the author uses "income" to mean "profit"

That is the standard meaning of that term in business accounting. When you or I work for a salary, we think of income as all the money coming in, but that's because there are no allowable expenses that we get to deduct against that income, so our "revenue as employees" is all "income".

I think "income" is the standard accounting term in the US - in the UK the equivalent is "profit" (e.g. "P/L" vs "income statements").

I thought revenue was the standard accounting term in the US. I think of income as what I get to keep / freely reinvest, and revenue as a number that contains all kinds of hidden liabilities such as taxes, cost of sales, etc. That said, I’m (obviously) not an accountant.

When I look at it as a private person I think of income as the my personal revenue: from there I have lots of costs and tax to pay.

What I end up with is disposable income which I can keep/invest.

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