Revenue: the top line
Revenue (also called sales or turnover) measures how much business a company did. It says nothing about whether that business was profitable. Most companies break it down by segment or product, which is often the most informative part of the report.
Apple's fiscal third quarter of 2026 is a good example. Total revenue was $109.4 billion, up 16.4% from a year earlier, and the breakdown tells you where the growth came from:
- iPhone: $54.3B (+21.7%)
- Services: $30.7B (+12.1%)
- Mac: $10.4B (+28.7%)
- Wearables, Home & Accessories: $7.9B (+6.5%)
- iPad: $6.2B (−5.9%)
The path from revenue to net income
Profit is calculated in steps, each one subtracting another layer of costs:
- Gross profit = revenue − cost of revenue (the direct cost of producing what was sold).
- Operating income = gross profit − operating expenses (R&D, sales and marketing, general and administrative, and sometimes depreciation and amortization).
- Pre-tax income = operating income ± interest and other non-operating items.
- Net income = pre-tax income − income tax.
Here's Apple's quarter walked all the way down ($ millions):
| Line | Amount | % of revenue |
|---|---|---|
| Revenue | 109,417 | 100% |
| Cost of sales | −54,647 | 49.9% |
| Gross margin | 54,770 | 50.1% |
| R&D | −11,729 | 10.7% |
| SG&A | −7,346 | 6.7% |
| Operating income | 35,695 | 32.6% |
| Other income, net | +572 | 0.5% |
| Pre-tax income | 36,267 | 33.1% |
| Income tax | −6,478 | 5.9% |
| Net income | 29,789 | 27.2% |
Out of every $100 customers paid Apple, about $27 ended up as profit. On our deep-dive pages, this staircase is drawn as a Sankey chart: revenue flows in from the left, splits into streams for costs, expenses and taxes, and what reaches the right edge is profit. The width of each stream is proportional to the dollars.
Try it on any company: take revenue, gross profit, operating income and net income from one income statement, and the calculator splits every $100 of revenue the same way.
Try it with your numbers
Margins with your numbers: where the revenue goes
Take four lines from the income statement for the same period. The starting numbers are Apple's quarter from this guide.
Out of every $100 of revenue, $27.2 reaches shareholders. Colors match the Sankey chart streams.
Margins: making companies comparable
Each step has a margin, the profit at that step divided by revenue. Margins let you compare companies of very different sizes and track one company over time.
A few net margins from recent quarters in our deep dives:
| Company | Revenue | Net income | Net margin |
|---|---|---|---|
| AppLovin | $1,924M | $1,267M | 66% |
| Coca-Cola | $12,472M | $3,924M | 31.5% |
| Apple | $109,417M | $29,789M | 27.2% |
| DoorDash | $4,454M | $200M | 4.5% |
Different industries have structurally different margins, so the useful comparison is against direct competitors and against the company's own history.
Why revenue and net income diverge
Costs grow faster than sales
Operating leverage works the other way, too
When costs grow more slowly than revenue, profit grows faster than sales. Apple's revenue rose 16.4%, but operating income rose 26.6% and net income 27.1%. The deep dive notes that part of that boost came from a one-time tariff refund, worth about $0.11 per share, which is a reminder to check the quality of the growth, not just the rate.
Non-operating items
Below operating income sit items unrelated to the core business: interest, investment gains and losses, currency effects. They can make net income look much better or worse than operations.
- Nvidia, Q2 fiscal 2027: operating income of $63.7 billion, plus $7.8 billion of other income that was almost entirely unrealized gains on equity stakes. About 13% of pre-tax income didn't come from selling chips. See the Nvidia breakdown.
- Microsoft, Q4 fiscal 2026: operating income grew 18%, but net income grew 31%, flattered by a roughly $3.2 billion gain on its Anthropic investment. See the Microsoft breakdown.
One-time charges
Intel reported revenue up 25% in Q2 2026 and an operating income swing from a $3.2 billion loss to a $1.8 billion profit. Its GAAP net loss was nonetheless $11 billion, because of a $12.5 billion non-cash charge on a derivative tied to the US government's equity stake. Net income said "disaster"; operations said "turnaround." See the Intel breakdown.
Taxes
Effective tax rates vary widely and can swing from quarter to quarter. Nvidia's was 16.5% in its latest quarter; Apple's income tax rose 40.9% year over year, faster than its pre-tax income. A change in the tax rate alone can move net income by several percent.
Which one matters more?
Both, for different questions:
- Revenue tells you about demand, market share and growth. It's also harder to manipulate than profit.
- Operating income tells you whether the core business is profitable, before financing choices and taxes.
- Net income tells you what actually belongs to shareholders, and it's the basis for EPS and the P/E ratio.
If the explanation involves "adjusted" numbers, our guide to EBITDA covers what usually gets added back. And for a quick routine you can use on any report, read How to Read an Earnings Report in 5 Minutes.
The bottom line
- Revenue is the top line: total sales. Net income is the bottom line: what's left after all costs, interest and taxes.
- Profit is calculated in steps: gross → operating → pre-tax → net.
- Margins make companies comparable; compare within an industry.
- Revenue and profit can diverge because of cost growth, non-operating gains and losses, one-time charges, and taxes.
Sources
Standards, regulators and filings this guide relies on. Company figures come from their SEC filings and press releases.
- U.S. Securities and Exchange Commission Beginners' Guide to Financial Statements · 2017
How this guide was made: the draft was written with the help of our model (AI); facts and figures were checked against primary sources (listed above). How we make it
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