How net income is worked out
Start with revenue and take off each cost in turn. Cost of goods sold gives gross profit. Operating expenses give operating income. Add other income, take off interest, and you have income before tax. Taxes come off last.
Net income = revenue − COGS − operating expenses + other income − interest − taxes
Net margin % = net income ÷ revenue × 100. Nothing is rounded until the result is shown.
Example
Revenue $250,000.00, cost of goods sold $140,000.00, operating expenses $70,000.00, interest $6,000.00, other income $2,000.00, taxes $7,500.00.
- Gross profit: $250,000.00 − $140,000.00 = $110,000.00
- Operating income: $110,000.00 − $70,000.00 = $40,000.00
- Income before tax: $40,000.00 + $2,000.00 − $6,000.00 = $36,000.00
- Net income: $36,000.00 − $7,500.00 = $28,500.00
- Net margin: $28,500.00 ÷ $250,000.00 × 100 = 11.4%
Questions
What is net income?
The SEC’s Investor.gov glossary describes it as the profit left after all expenses and taxes are taken from revenue [1]. It is the bottom line, sometimes called net profit.
Is this for a business or for my paycheck?
A business. For take-home pay from wages, use the paycheck calculator.
Where does other income go?
Things outside normal trading, such as interest earned or a gain on selling equipment. A loss goes in as a negative number. It is added before taxes.
Do I enter the tax amount or a rate?
The amount. The calculator does not know your tax rules, so it never works tax out for you. It shows the effective rate the amount implies.
Why is net margin blank when revenue is zero?
Net margin divides by revenue, and dividing by zero has no answer. Net income itself is still shown.