The Finance Professor: How to Read an Income Statement

Section by Section

Let's first start in the top section of this income statement, with revenue (or income). Please note that within revenue you have two different classifications: sales (e.g., "Sales by Company --operated restaurants") and revenue (e.g., "Revenues from franchised and affiliated restaurants.") While sales and revenue might seem like identical terms and are frequently used interchangeably, there are some subtle differences to be aware of.

Sales vs. Revenue

Some companies act as direct sellers to the public and, concurrently, as suppliers to wholesalers or other distributors. Other companies use franchisees to distribute their product. Sales represent direct sales to the public or distributors. In McDonald's case, these are sales that McDonald's makes at company-owned restaurants. Revenue represents income streams from nondirect or ancillary sources. For McDonald's, this would be fees earned from franchisees that operate their own McDonald's branded restaurants.

For another take on the difference between sales and revenue, let's take a quick look at BJ's Wholesale Club (BJ Quote). BJ's direct sales to customers would be viewed as sales, while the fees it earns from its members' annual membership dues would be viewed as a revenue item.