How To Calculate Net Income

Hi, my name is Grant Hobson, I've been a finance analyst for the last 6 years. Today I'm going to run you through some financial performance methods as well as some investment appraisal techniques. How to calculate net income: Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses.

This is sometimes called the bottom line, also referred to as earnings and net profit. The net income can be distributed amongst your shareholders as dividends, or held by the firm as retained earnings for future investment. The calculation would be as follows: If u take your net sales revenues, which would be 250,000 pounds for the year, and then less your associated costs of goods sold at 120,000 pounds for the year, it gives you a gross profit of 130,000 pounds.

Then, you have your other selling and distribution, your advertising expenses, which have a cost of 20,000 pounds. Depreciation and amortization cost: 12,000 pounds. Any interest expenses on the debt that you have gotten: 1500 pounds.

Last, your tax expense: 18,000 pounds. Giving you a net income of 78,500 pounds. So to recap, if you take your net sales revenue which would be 250,000 pounds for the year; less your cost of associated goods sold, 120,000 pounds for the year, gives you a gross profit of 130,000 pounds.