how to calculate net income

Gross income will almost always be higher than net income since gross profit has not accounted for various costs (e.g., taxes) and accounting charges (e.g., depreciation). On the other hand, net income represents the profit from all aspects of a company’s business operations. As a result, net income is more inclusive than gross profit and can provide insight into the management team’s effectiveness.

how to calculate net income

Some companies disclose general & administrative expenses (G&A) as a separate line item within the operating expenses section of their income statement. There are many reasons why net income is important, such as determining how much profit can be divided among investors and how much money can go toward new projects. With the net income formula, you can easily calculate how profitable your business is by finding the difference between your total revenue and total expenses. In the same way businesses use net income as a metric to track their financial performance, you can measure your personal net income to better understand your financial picture. In personal finance, net income would consist of all the money you have coming in (revenue) minus all the expenses you have going out (expenses and operating costs). Net income refers to the income left over after all expenses have been deducted from a business’s collected revenue.

How To Calculate Net Income: Net Income Formula & Examples

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The first step is to subtract your total liabilities from your total assets. The second step is to subtract any debts that you may have from your net worth. Individuals can calculate net income simply, by taking their net take-home pay and reducing it by their expenses. In addition, it includes amortization – used to periodically lower the book value of a loan or intangible asset over time. Earnings are your company’s profits after expenses and liabilities, including taxes. For our net income example, the following annual financial results for Exampt Inc. (not a real company) are assumptions to calculate its net income.


Some employers may also offer optional alternatives to paychecks, such as paycards, which can be advantageous to unbanked workers. Whether you want to know the net income for yourself or your business, there are different ways you can find and calculate your net income. When calculating your net income, you’ll want to account for any interest that needs to be paid on outstanding debt. To figure out what taxes may apply to you, check out this guide from the Internal Revenue Service. Sign up for Shopify’s free trial to access all of the tools and services you need to start, run, and grow your business. Try Shopify for free, and explore all the tools and services you need to start, run, and grow your business.

What is the formula for net income and profit margin?

Net Profit Margin = Net Profit ⁄ Total Revenue x 100

The result of the profit margin calculation is a percentage – for example, a 10% profit margin means for each $1 of revenue the company earns $0.10 in net profit. Revenue represents the total sales of the company in a period.

A company’s net income—sometimes called net earnings—could be seen as a way to measure how profitable the business is. So net income can be one of the most important numbers for a business to know. Whether you want to pay off debt, create a manageable budget or save for a home, understanding net income could be the first step in managing your money. By itself, net income as a standalone metric is not too meaningful. Net income helps you monitor your business’s financial health — especially as a public company.

How to Calculate Net Income (Formula and Examples)

Tracking net income helps you understand the financial health of your business. Keep in mind that under those major line items – revenue, operating expenses, etc. – organizations will further detail different types of expenses or where the revenue is coming from. Depending on the business and the industry it operates in, the sources of revenue and operating costs will vary. Net income appears as the bottom line figure in the income statement. It also appears in the statement of cash flows as the top line figure under operating activities and is recorded in the statement of retained earnings. Some businesses prefer to deduct taxes as part of their expenses to calculate net income for a more complete picture of quarterly or annual net income.

  • If you have any debts, you need to subtract them from your net worth.
  • Companies in high-growth industries like SaaS need money to sustain growth.
  • Net income is important because it tells you how much money you have leftover after all of your debts are paid.
  • The income statement is one of three main financial statements companies use.
  • But some startups and hypergrowth companies operate at a loss for several years as they invest heavily to capture market share in their niche.
  • It’s calculated as the overall sales revenue of a business minus the general expenses, costs of goods sold, taxes, operational costs, and any other expenses.

If Wyatt wants to calculate his operating net income for the first quarter of 2021, he could simply add back the interest expense to his net income. is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict
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Understanding Net Income (NI)

Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional. Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts. Reach out for a personalized demo of Mosaic today to learn how you can streamline metric calculations and improve financial analysis. For example, a company that has issued cumulative preference shares accumulates a liability if it’s unable to pay dividends every year.

How do you calculate net income from balance sheet?

Finally, we can calculate the net income by subtracting the total expenses from the total revenue. If the total revenue is greater than the total expenses, the company has a net income. If the total expenses are greater than the total revenue, the company has a net loss.