1: net income definition
2: how to calculate net income
3: net income vs revenue
4: how is net income distributed
Opening information:
When comes to business the net means the total value of some materials or matters. Income means receiving the amount of earnings from one or more works is called income.
Net income means the total received money from one matter of business.
Income means comes inside into it from someone. So it doesn’t have any other meaning for it.
This article contains information about what is net income in the stock market, how to calculate net income, the difference between net income and revenue, and finally how net income is distributed.
1: net income definition
Businesses that start at the beginning always look for good revenue in the company.
The product or service offered on the market, the service or products costs something to produce for the customers.
Where the cost above the production cost of goods or services is called gross profits. Without any gross profit in product or service, the business won’t calculate the profits on each item.
None of the businesses won’t make any profits without any expenses on the returns. The expenses would be the cost of producing the product or service, marketing, sales agents, general and administration expenses, extraordinary items, nonrecurring expenses, extra…
After the expenses of business necessary spending, the leftover money is always called net income, and regular activities of the profits are called earnings. The monthly earning of every quarter is called net income.
But when comes to public trade Companies the net income is calculated in a different manner which means taxed at a different rate. So now let’s have a look at how to calculate the income of public corporations.
2: how to calculate net income
Every net income of the company would be mentioned in the income statement or profits and loss statements, but understanding how the net income is calculated helps you to gain more confidence in investing and business.
Businesses would have sales of goods and services every year. The sales amount is not the profits or net income amount of the company.
It’s just sales money of total products or services without neglecting any expenses in the whole business. These total net sales have three types of expenses.
This means cost of goods or services expenses is one type, then operating expenses are the second type which is marketing, research, sales incentive, and administration expenses.
The third type of expenses would be interest payment, loans, income tax extra… After the deduction of these three types of expenses, the leftover sales money is the net income of any industry or Company.
Moreover, the tax is not taxed at individual tax rates instead the Public company pays a corporate tax rate on the total income.
To make you more clear on net income let’s say the company E had 1 million dollars in net sales, cost of products would be $500,000
Marketing expenses were 50,000 dollars, research expenses were 30,000 dollars, sales incentives were $25,000, and administration expenses were $80,000.
Next on the interest and loan payment company E paid $150,000 and corporate taxes would be $45,000. So what is the company E net income?
1, Total sales = 1 million dollars
2, cost of products = $500,000
3, (1-2) Net sales = $500,000
4, marketing expenses = $50,000
5, research expenses = $30,000
6, sales incentive = $25,000
7, administrations expense = $80,000.
8, (3 – 4+5+6+7) EBIT (earnings before interest and taxes)= $310,000
9, interest and loan = $150,000
10, income tax = $45,000
11, ( 8- 9+10) net income = $115,000
Now the net income of Company E is 115,000 dollars. Now let’s clear the doubt of revenue and net income.
3: net income vs revenue
Net income and revenue are not the same words. The net income is the final profit amount after paying off all the expenses and interest. But the revenue is the total sales amount or net sales.
The net sales are also called revenue. Publicly traded Companies around the world would mention revenue as net sales or total sales or sales of goods or services extra…
So the key difference between the revenue and net income would be revenue is net sales and net income is pure final profits.
Once the net income is made from company E, then it would be distributed to its shareholders equally.
4: how is net income distributed
Told the net income of the company would be $115,000. the company would have 50,000 shareholders.
If the total net income of the one quarter means three months of business profits, it’s divided into 50,000 shares with a total of $115,000 net income.
then each share would receive 115,000 ÷ 50,000 = $2.3 from the company, where this distribution is also called dividends in the corporate business.
Market rule: #100187
Net income is a market rule because it shows how much such an industry would perform in profits from the total invested.
If your investors are not comfortable or align investing with based on market rules please learn about how to regulate your investments under your control with the use of Rule investing.