Net Income Calculator
Enter revenue, cost of sales, operating expenses, interest and taxes to see net income, each income statement subtotal and the net margin.
Updated
Net Income Calculator
Our Net Income Calculator works down an income statement from revenue to the bottom line. Type revenue, cost of sales, operating expenses, interest and taxes for one period, and net income appears at once with gross profit, operating income, pre-tax income and the net profit margin. It suits business owners checking a month or a year, investors reading financial statements and accounting students practising the income statement.
Quick answer
Net income is revenue − all expenses: 1,000,000 − 915,000 = 85,000, a net margin of 8.5%.
- Gross profit: revenue − cost of sales.
- Operating income: gross profit − operating expenses.
- Pre-tax income: operating income − interest.
- Net income: pre-tax income − taxes, the bottom line of the income statement.
What Is Net Income?
Net income is the profit a business has left after every expense for a period has been taken off its revenue, including the cost of the goods it sold, its running costs, interest on its debt and income tax. It is the last line of the income statement, which is why it is often called the bottom line, net profit or net earnings.
Net income is what can be paid to owners as dividends or kept in the business as retained earnings, and it is the starting point for earnings per share. A negative figure is a net loss.
Net Income Formula
− cost of sales
− operating expenses
− interest − taxes
The calculator also shows the subtotals an income statement passes through:
Operating income = GP − opex
Pre-tax income = OI − interest
Net income = pre-tax − taxes
- Revenue: sales and other income for the period.
- Cost of sales (COGS): materials, stock and direct labour used to make or buy what was sold.
- Operating expenses: wages, rent, marketing, utilities, depreciation and other running costs.
- Interest: interest charged on loans and other borrowing.
- Taxes: income tax charged on the period's profit.
How to Calculate Net Income
A company has revenue of 1,000,000 in a year. Cost of sales is 650,000, operating expenses are 200,000, interest is 25,000 and taxes are 40,000:
350,000 − 200,000 = 150,000
150,000 − 25,000 = 125,000
125,000 − 40,000 = 85,000
- Gross profit. 1,000,000 − 650,000 = 350,000 (a 35% gross margin).
- Operating income. 350,000 − 200,000 = 150,000 (a 15% operating margin).
- Pre-tax income. 150,000 − 25,000 = 125,000.
- Net income. 125,000 − 40,000 = 85,000, so 8.5% of revenue is left as profit.
Taxes of 40,000 on pre-tax income of 125,000 are an effective tax rate of 32%.
Net Income Examples
| Business | Net income |
|---|---|
| Online shop: 400,000 − 240,000 − 110,000 − 5,000 − 9,000 | 36,000 |
| Consultancy: 180,000 − 0 − 95,000 − 0 − 17,000 | 68,000 |
| Restaurant: 750,000 − 270,000 − 420,000 − 18,000 − 10,000 | 32,000 |
| Start-up: 120,000 − 50,000 − 140,000 − 6,000 − 0 | −76,000 |
The online shop keeps 9% of its revenue. The consultancy has no cost of sales and no debt, so its net margin is about 37.78%. The restaurant has a healthy gross profit of 480,000, but rent and wages leave a net margin of about 4.27%. The start-up spends more on running costs than its gross profit, so its operating income is −70,000 and it pays no tax on its 76,000 loss.
Net Income vs Other Profit Measures
- Gross profit
- Revenue minus cost of sales. See our Gross Margin Calculator.
- Operating income
- Profit from running the business, before interest and tax. See our Operating Margin Calculator.
- EBIT
- Earnings before interest and taxes, close to operating income. See our EBIT Calculator.
- Net income
- Profit after every expense, including interest and tax. Divide it by revenue in our Net Profit Margin Calculator.
Net income is the same figure as accounting profit. It is not cash: depreciation lowers it without any cash leaving, and sales made on credit raise it before the cash arrives.
Limitations and Common Mistakes
- Counting a cost twice. Direct costs go in cost of sales and the rest in operating expenses, never both.
- Leaving out depreciation. It is a real expense on the income statement, so include it in operating expenses.
- Treating net income as cash. Loan repayments, equipment purchases and unpaid invoices change cash but not net income.
- Mixing periods. Use the same month, quarter or year for all five figures.
- One-off items. Gains from selling assets or large write-offs can swing net income, so check them before comparing years.
How to Use the Net Income Calculator
- Enter revenue. Type total revenue for the period, such as 1,000,000. Commas are fine.
- Enter the four expenses. Type cost of sales, operating expenses, interest and taxes, such as 650,000, 200,000, 25,000 and 40,000. Type 0 for any that do not apply.
- Read and copy the result. Net income appears as you type, with the working, gross profit, operating income, pre-tax income, the net profit margin and a bar of expenses against net income. Press Copy to copy it, or Clear or Esc to start again.
Example: revenue 400,000, cost of sales 240,000, operating expenses 110,000, interest 5,000 and taxes 9,000. Net income is 400,000 − 364,000 = 36,000.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
What is the net income formula?
Net income = revenue − cost of sales − operating expenses − interest − taxes. It is the bottom line of the income statement.
How do you calculate net income from an example?
With revenue of 1,000,000, cost of sales of 650,000, operating expenses of 200,000, interest of 25,000 and taxes of 40,000, total expenses are 915,000, so net income is 1,000,000 − 915,000 = 85,000.
What is the difference between gross profit and net income?
Gross profit is revenue minus cost of sales only. Net income also takes off operating expenses, interest and taxes, so it is always the same as or lower than gross profit when those are positive.
Is net income the same as net profit?
Yes. Net income, net profit, net earnings and the bottom line all mean revenue minus every expense for the period.
Can net income be negative?
Yes. When expenses are larger than revenue, net income is negative and is called a net loss.
Is net income the same as cash flow?
No. Net income includes non-cash items such as depreciation and sales not yet paid for, while cash flow counts only money that actually moved.
What is a good net profit margin?
It depends on the industry. Restaurants and grocers often run on a few percent, while software and consulting firms can keep far more. Compare a business with its own history and its peers.
Is the Net Income Calculator free?
Yes. It is completely free, needs no sign-up, and can be used as many times as you like.
Sources
- Wikipedia. Net income.
- Wikipedia. Income statement.
- Wikipedia. Gross income.
- Wikipedia. Profit margin.
- AccountingCoach. What is net income?.
- AccountingCoach. Income Statement: In-Depth Explanation with Examples.
- Corporate Finance Institute. Net Income After Tax (NIAT).
- Wall Street Prep. Net Income: Formula + Calculator.
Try our Net Income Calculator to see the bottom line of any income statement in seconds.