1: calculate net income
definition
2: how to calculate net income
3: calculate net income vs calculate operating income
4: example of calculating net income
Opening information:
Calculate net income sentence breaks into three words calculate, net, and income. Calculate means one mathematically computes something, net means free from the obligation of something, and income means earnings from one matter or activity.
Calculate net income means computing the earnings free of deduction and expenses, so now let’s have a look definition of calculating net income, how to calculate the net income, and what is the difference between the calculation of net income and operating income, finally one clear example about the calculation of net income.
1: calculate net income definition
Marshalo is a networking company, that has billions of SIM card user all over their country, which generates billions of dollars every year in revenue.
But their final leftover earnings would be very low after deducting all their business spending.
The cost of production for the new sim and primary activities it’s cost around 20 percent of the revenue what Marshalo company.
Next, the bank loan which is taken by the marshals for growing their business Industries in future time had paid the 5 percent of the revenue to the pay the loan.
Then marshalo business had 52,000 employees including a top manager and CEO, where such administration expenses are the ones which are used to spend 52 percent of the revenue in running a whole business.
After paying the debts as interest expenses, administration expenses, and cost of goods or service expenses which take a total deduction of 77 percent in the total revenue.
23 percent of the revenue is the one that is left over after all expenses of the marshalo business, where that 23 percent is what is considered the net income of one business.
So now let’s dive into know how to calculate and understand net income in any kind of business in the public market.
2: how to calculate net income
First of all, before calculating the net income, let’s demonstrate that net income doesn’t represent any specific physical object, instead, they are an idea of revenues or money that are left over after all the deduction of expenses.
Whenever any business made the revenue of each quarter and year, they normally had a tax and expenses for such business, and expenses for such business are limited based on the tax law.
After the huge revenue, none of such sales amounts wouldn’t be accounted for as net income in one business, instead, each of the Industries had a different kind of expenses, so any amount of all expenses taken from the whole revenue became net income in the public market.
Moreover, to sum and calculate the net income, the Investor must know the cost of goods or services of such Industries, and the secondary expenses of all spending which are not directly aligned with business products such as administration expenses, marketing expenses, interest expenses extra…
At the same time, the tax is also imposed on the revenue of one business which is also noted as expenses in the accounting, even after all the obligated business expenses, the last left over money is what is called net income.
The net income is calculated by Net income = Revenue / all expenses.
Most people confuse
calculating a net income with calculating an operating income, so let’s jump into knowing the key difference in it anyway.
3: calculate net income vs calculate operating income
The difference between the calculated net income and operating income is, that operating income refers to the income from running the business in primary operation and administration, whereas operating income is found by only the deduction of operating expenses.
On the other side, net income is not an operating income instead they are found by reducing the expenses of the entire business including taxes and interest expenses.
To make you more clear about the calculation in the net income let’s see at one clear example below.
4: example of calculating net income
Say company H had Revenue of 250 million dollars, among $250 million. It had $56 million in cost of goods expenses, $12 million in research and development expenses, 20 million for administration expenses, 8 million in marketing expenses.
After deductions from the above expenses of the operating business, the left over revenue of 154 million is as operating income but not as net income.
Then among such 154 million, interest payment of 4 million dollars, other expenses of 5 million dollars, and taxes expenses are 46 million dollars.
However, after the all expenses of the whole company H, where leftover money or income is accounted as net income in the income statement at the last line.