What is Net Income? How to calculate?

Surely you often hear a lot of Net Income, especially for those who work in the field of finance and economy. So What is net income?? Most businesses need to pay attention to the numbers related to Net Income. In the article below, Writing Posts Xuyen Viet Will share you with useful information about net profit. Do not miss it!

What is Net Income

Any business when engaging in business or trading should pay attention to revenue and profit. In which, turnover is the total amount of money earned by an enterprise after the sale of goods and the main profit is the remaining amount after deducting business expenses.

Besides Net Income, net income is also known by many other names such as Net Income, Net Earnings or Net Profit. The abbreviation is NI. Net income is a useful value for investors to assess in terms of revenue, company costs, and the possibility of revenue exceeding expenses.

Typically, on corporate financial statements you will see indicators of net profit appearing. This is the key for business analysts to get to the market. At the same time, it is at the end of every report after deducting taxes, expenses, and profits from sales.

What is Net Income?

What is Net Income?

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Net Income calculation

Before you can start calculating the Net Income, you will need to know the other metrics included in the business report for the business. As follows:

  • Total Revenue: Total Revenue: This is the total amount of money the business earns from selling goods or providing services to customers.
  • Cost of Goods Sold: This is the cost constituting a product. Usually includes direct production costs, raw material costs, purchasing costs, etc.
  • Net revenue (Gross Profit): This is the remaining revenue after calculating the cost of cost. Net revenue represents the difference between the cost price and the selling price of products and services that the business provides.
  • Operating Expense: Including all expenses in the process of selling activities, managing businesses, promoting effective business operations.
  • Other Expenses (Interest Expenses): All expenses not related to the management and business activities of the enterprises fall under this expense category.
  • Taxes: Taxes are calculated on the remaining income, including:

(Net revenue – Operating expenses – other expenses) *% of payable tax as prescribed.

The corporate income tax rate that our government is currently applying is usually 20% – 25%.

The formula for net profit equals sales minus expenses

The formula for calculating net profit is the revenue minus expenses

After understanding these ratios in your financial statements, you can calculate your Net Income. The formula for calculating net profit is as follows:

Net profit = Total revenue – Cost of goods sold – Operating expenses – Other expenses – Taxes

= Net revenue – Operating expenses – Other expenses – Taxes.

For example:

Enterprise A sells sports shoes with a turnover of VND 300 million / month. The expenses include: The cost of buying machinery 40 million, operating costs 50 million. Enterprise A’s loan interest is VND 15 million and the income tax is VND 25 million.

Enterprise A’s Net Income is:

Revenue 300 million VND – Expenses (40 million VND + 50 million VND) – Interest 15 million VND – Income tax of 25 million VND = 170 million VND / month.

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Differentiate Revenue and Income

Many people often confuse Revenue and Income as one. However, in reality these are two completely different concepts. Enterprises need to rely on these indicators to make an accurate and objective market assessment.

Inside:

  • Revenue: Revenue or total business income obtained through sales activities. The more effective the business, the higher the revenue.
  • Income: Profit earned by business activities. This is the amount of business revenue after subtracting all expenses.

A simple example for you to easily identify the revenue and profit earned by the business. The lipstick company has a turnover of 200 million dong / month; the company has to spend 70 million dong / month. So the company’s revenue is 200 million, the main profit is the amount minus the cost of 130 million.

A lot of people are often confused about sales and profits in business

A lot of people are often confused about sales and profits in business

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Looking at these numbers shows that the company’s business is doing well. Businesses may consider selling with a larger quantity of lipsticks to the market.

Above, you already know what net income is. This is one of the important reporting indicators that many businesses are interested in. From there, experts can assess and assess the market more objectively.

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