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Net Income Formula (Example) | How to Calculate Net Income? - YouTube
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that's given below welcome everyone and
today we are going to learn a topic that
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is an accounting topic which is known as
net income formula well when we start
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with the net income formula I just want
to give you a brief synopsis what
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exactly we are going to do in this
particular session we are going to learn
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the meaning of what is net income
formula we are going to do some examples
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which will make you understand how this
formula exactly operates post facto I
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will show you some of the permutation
combination that can be done you know
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when things are done on the calculator
part some of the cost sheets where how
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exactly the net income are been
determined so this is exactly how the
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whole structure will go about for our
session today let's begin well first of
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all what is net income formula that is
above First in the prior question when
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we say net income is the most looked
after the numbers in the financial
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statement of the company so net income
equation is basically I'll just write
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net income formula is equal to your
total revenue minus total expenses okay
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so this is what the formula goes now net
income or the net profit is calculated
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so that the investors can measure the
amount by which the total revenue
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exceeds the total expense of the company
that is quite evident from the formula
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now the total revenues let me just
spinoff the first the total revenues
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with that we have an idea the total
revenue includes the earnings from the
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sales of the goods and also not only the
goods part but also these services parts
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then we have the interest income and
then the income from the sale of
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business or other income and then the
total expenses this was a total revenue
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then the total expenses when when we
talk about the total expenses we have it
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includes the cost of good sold operating
expenses like salaries it also includes
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wages if any any office maintenance that
is also part of it ok then
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utilities depreciation amortization and
then the interest income and if there
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are any taxes ok this are the items that
are included let me take you through
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some of the examples so that you will
get more clarity on the topic let's
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start with the examples is now let's
take a few simple to advanced examples
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to understand the net income equation
let's start with example number 1 let's
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say this a company called ABC Inc it has
revenues from the sale so standing at
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$1,00,000 for 2017 ok and it is
paid 20000 as employee wages
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wages as 20000 the raw
material of the goods is $5,000
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and so yet the wages is 20000 as employee wages
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50,000 sorry as raw materials of goods
and 5000 for other office
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expenses
okay now the company has an interest
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income interest income to the tune of
3,000 and and it's it's paid taxes to
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the tune of 2500 so what
is the net income here what is the net
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income here of company ABC Inc for well
the total revenue of the company
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is equal to
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revenue from the sale plus the interest
income as I previously told
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well so here the total revenue will be
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how much your wages sorry the total
revenue 100000+3000
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as your interest income
and then the total expenses we need to
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add all of this 20+50+5 right
plus 2500 I
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hope I've missed out anything that's
interest income yes well that is it so
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post facto we get net income formula
that is total revenue minus total
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expenses
103000 -77500 minutes
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25500 that's
your net income
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let me take you through some complex
examples example number two let us see
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the profit and loss treatment of apple
you know in the net income that is
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reported by the company I'll show you
the snapshot first now this is basically
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the snapshot from the 10k filing of the
company two SEC a calculation of the net
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income is done at the bottom here okay
bottom line of the profit and loss
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statement or the statement of the
operations which is also known as so the
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net income of the company is highlighted
in yellow your net sales minus cost of
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sales gross margin all your operating
expenses and then you get the net income
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right okay now what is the relevance
before example number two tell me one
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thing what are these relevances or think
about it or of the net income
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well the net income equation is used to
calculate the net income of the company
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very simple yeah but it is the most
important number of the company the
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analyst investors shareholders of the
company as they look at it why because
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it measured measures the profit the
profit of what profit that is earned by
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the company over the period of time okay
and a lot of financial ratios are
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impacted by the net income number so the
shareholders they they keenly follow the
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the
give a strong follow-up on this because
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it is a metric as the amount of the
dividend it is paid to the shareholder
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depends on the net income of the biker
company or reported by the comfortable
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although net income is important metric
in terms of profit earned by the company
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it is not an actual cash to remember
this it is not an actual cash take this
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into consideration not before that not
an actual cash on mother company so the
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statement of the operations or the
profit and loss statement the company it
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includes a lot of non-cash items such as
like depreciation amortization does any
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change in the net income or the
financial ratios as such should be
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properly analyzed Vickers remember one
thing lower the net income what will
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happen it may be due to the lower net
income it it can be due to lot of
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factors let's include a poor sales in
that poor management probably higher
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expenses and so on and so forth six net
income varies from companies to
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companies industry to industry it can
vary due to the sizes of the company and
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the industry in which it works some
companies have heavy we can say that
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have very business assets models those
the depreciation expenses will be high
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while the others may have you
they have different other expenses I
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mean the growth factors in industry is
like you know it depends on the debt
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levels the common taxes because that
affects the net income numbers of the
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company overall now let's look at the
another example of net income equation
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and try to solve it in Excel let's say
company XYZ has the total revenue I'll
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just change some of the numbers here and
then I will show you some things 500000
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the cost of the goods sold by the
company is let's say COGS is 120000
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that is your COGS
okay the company paid salary in wages to
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employees to the tune of let's say
30000 here
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and to 20,000 for let's say rent or
office expenses and now company recorded
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15,000 as the depreciation
expenses
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what 20,000 as your depreciation
expenses the company also pays interest
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that is to the tune of 10,000 for the
long-term expenses and pay taxes to the
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tune of 20,000 so the calculation of the
net income can be done simply by
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subtracting all the expenses from the
revenues and the calculation net income
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equation I will show you see the total
revenue cost of goods sold and the gross
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profit write a minus B that that gives
you a gross profit then all your
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expenses which are basing your operating
expenses when you add that okay once you
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add that you get the total operating
expenses then the inter interest in the
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taxes when you add both of them okay
what you get is the total expenses right
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so this result both the total expenses
here I hope you are getting it now once
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you go down here you see the net income
is a total revenue minus total expenses
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that is B 8 the operating profit is what
it is after deducting the total revenue
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total revenues right that is B 8 minus B
12 the operating profit minus the total
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expenses right I hope you're getting it
what what things are happening here and
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your net income will be same be 8 minus
B 12 so I hope you have got a fantastic
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idea regarding this particular topic if
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