How to Calculate Net Income

Net Income is a very useful term in the business field. Further, it helps to show the accurate business picture. In addition, it displays the net profit of your company. This is a really beneficial term from a business perspective. So, you need to know the detailed process regarding this topic. As it shows the profitable side, you can invest it somewhere else fr expansion purposes. But, many users don’t know ‘How to Calculate Net Income?’. Though it is a different term, do not get panic. We are here for your help. So, we are throwing here detailed information about this interesting topic. You will definitely get a number of advantages with it. We have also covered the article on ‘How to Check the CIBIL Score‘. Let’s get an overlook this very useful tutorial ‘How to Calculate Net Income?’.

How to Calculate Net Income?

Net income is also known as net profit or earning. Thus, it is the amount obtained after the subtraction of expenses from the revenue. So, it reflects the image of your company in many ways. You can put this profit in shareholders, new projects or future planning, etc. Thus, you get the knowledge about it. We are delivering here a tutorial on ‘How to Calculate Net Income?’. We assure you of its outcomes. So, be responsible with this elaborative data. We expect your healthy involvement in this segment. Thus, don’t miss this chance. Let’s begin this amazing journey.

How to Calculate Net Income
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Process Used For This Purpose

There is a specific procedure available for this purpose. So, follow the information provided here to complete the operation.

Formula:

Net Income = Total Revenue – Goods Sold Cost – Total Expenses

Further, Total Revenue – Goods Sold Cost = Gross income

So, putting this entity in the above formula, we get the modified one here.

Thus,

Net Income = Gross income – Total Expenses

In a simple way, you can also express the above formula again as below.

Net Income = Total Revenue – Total Expenses

Basic Information

The net income is variable quantity. It depends upon your company’s revenue.

Positive Output

When your company’s revenue is more than the expenses, then it is a positive entity.

Negative Output

If the expenses are more than the revenue, it is negative entity.

Example:

Let’s suppose, Harry has his own company. so, he wishes to fid out the net income of his company for the first quarter. Moreover, following is the list of the entities available.

  • Total Revenues: $80,000
  • Goods Sold Cost: $15,000
  • Rent: $5,000
  • Utilities: $3,000
  • Payroll: $20,000

Here,

Gross income = Total Revenue – Goods Sold Cost

= $80,000 – $15,000

= $65,000

Further,

Total Expenses = Rent + Utilities + Payroll

= $5,000 + $3,000 + $20,000

= $28,000

Thus,

Net Income = $65,000 – $28,000 = $37,000


Operating Net Income Formula

It is another very useful term for users. Moreover, it is fully dependent upon the company’s core operations. Further, it includes the terms like income tax, expense on interest, income from interest & gains or losses, etc. Thus, it doesn’t take the other things into account.

Formula:

Operating Net Income = Net Income + Expense of Interest + Total Taxes

Another form of this formula is as provided below.

Operating Income = Gross Profit – Expenses on Operating purposes – Depreciation – Remittance

Basic Information

This term plays a vital role in many functions. So, investors prefer it to net income. Moreover, it displays the company’s core operating activities. So, they can analyze its performance. Financial statements keep eye on this part of the company more than the previous one. Thus, it makes you aware of the company’s overall health.

Example:

Let’s take the same example explained above. So, Harry can easily calculate the Operating Net Income by the following formula. Just consider that he should pay the interest expense = $2000

Operating Net Income = Net Income + Expense of Interest

= $37,000 + $2000

Operating Net Income = $39,000

Thus, you can go for this method also.


In this way, following the above-mentioned formulae, you can easily calculate the income.