Calculating Net Income Using the Formula Below
So let’s walk through how to calculate net income using the net income formula below. If you need a refresher on any of the terms or calculations, the last few posts will take you through the process. Initially we were able to calculate the gross margin on the company by subtracting the cost of goods sold from the total sales:
After that we calculated the total operating expenses by adding up the Sales, General & Administrative expenses (SG&A) and the Research & Development expenses:
Once we calculated the gross margin and the total operating expenses, we calculated the income from operations using the formula:
Finally, we were able to also calculate the non-operating income and the company’s income taxes. With all this information, now we can calculate the net income of the company!
The Net Income Formula
Since we’ve been able to calculate all of the other items on the Fish Shack’s income statement, we’ve made our way to calculating the company’s net income. Overall, net income is the amount of money that is left over after all costs, expenses and taxes are subtracted from the total sales of the company. If you ever hear someone talking about a company’s profitability, they are referring to the net income. Sometimes you will also see this referred to as the net income after taxes or NIAT.
To calculate the net income of the company, we can add the income from operations to non-operating income and then subtract the company’s income taxes:
Net Income = $13,082.50 + $50.00 – $3939.75 = $9192.75
So this means that over the last month, the Fish Shack made $9192.75 in total profits after paying all of its costs, expenses and taxes.
Net Income Calculator and Income Statement Template
Since we’ve gone through all the calculations by hand to learn how money flows through the income statement, I thought it might be helpful to put together an income statement template that will automatically calculate all of the values we’ve covered in this course. Feel free to download the template using the link below and let me know if you have any questions on how to use it. Enjoy!
Key Takeaway: Net income is the money that is left over once all costs, expenses and taxes are subtracted from the total sales. As we work our way through the income statement, we can use the net income formula to calculate net income by adding income from operation to non-operating income and then subtracting taxes.