Net Income
Net Income Calculator helps the user to calculate the earnings left with the entity after paying off all its expenses during the accounting period. It provides a platform to assess the profit of the company. It gives a glimpse of the income information of the company. And also helps the management in forecasting and making a comparison between companies of the same industries. The management can also make a comparison with budgets as well as past years’ performance.
Formula for Calculating Net Income
Net income can be calculated by deducting all total expenses from total revenue. A mathematical representation of the net income formula is as follows:
Net Income = Total Income – Total Expenses.
About the Calculator / Features
The calculator efficiently provides the result of net income calculation once the user provides the following detail in it.
- Total income
- Total expenses
Net Income Calculator
How to Calculate using Calculator
The user has to just insert the following data into the calculator for the instant result of the calculation with a simple click.
Total Income
Total income comprises the revenue from operations and other incomes such as interest income, commission income, profit from the sale of assets, dividend income, and all other incomes. This figure can be obtained from the income statement of the company.
Total Expenses
Total expenses of the company are divided into various broad categories such as cost of material consumed (raw material, WIP, finished goods), purchases, changes in inventory, operating expenses, depreciation and amortization, finance cost (interest), taxes, and other expenses.
If the calculator return a positive figure, it is net income. However, if the calculator returns a negative figure, the company is bearing a net loss.
Example of Net Income
Let us try to understand this concept with the help of an example. Suppose a company, X ltd., sells plastic toys. The following information is extracted from the financial statements of the company.
- Revenue from operations $20,000,000
- Other incomes $7,000,000
- Purchases $10,500,000
- Depreciation and amortization $540,000
- Finance cost $10,000
- Other expenses $450,000
- Tax $450,000
| Particulars | ($) |
| Revenue from operations | 20,000,000 |
| Other incomes | 7,000,000 |
| Total Income (1) | 27,000,000 |
| Purchases | 10,500,000 |
| Depreciation & amortization | 540,000 |
| Finance cost | 10,000 |
| Other expenses | 450,000 |
| Tax | 450,000 |
| Total Expenses (2) | 11,950,000 |
| Net Income | 15,050,000 |
Interpretation of Net Income
A positive net income increases the amount of retained earnings of the company. However, a negative result means a decrement in retained earnings. The figure of the net income of the company is used by its stakeholders for the purpose of their analysis. Shareholders are the most interested people in the net income of the company as the dividend distribution depends on net income. Net income varies from company to company and industry to industry due to its size and nature.
Cautions
There are certain non-cash items, such as depreciation, amortization, profit or loss on sale of assets, goodwill written off, etc., which are recorded in the income statement in order to calculate the net income. These are actually the non-cash items. Hence, the cash flow from operations will be different than the Net Income.
