Examples of net profit
The following are examples of profit and loss calculations to help you understand the net profit calculations and the application of the two different versions of the net profit formula.
Example 1: Using gross income
The financial statement for Microsoft for the period that ended 6/30/2018
Revenue = $110,360,000
Total other income = $1, 416, 000
Gross income = $111,776,000
Product & service = £38,353
Research and development expenses = $14,726,000
Sales and marketing = $17,469,000
General and administrative expenses = $4,754,000
Income tax = $19,903,000
Total expenses = $95,205,000
Net income (profit): $111,776,000 - $95,205,000 = $16,571,000
From the edited figures above, the company's total revenue is the sum of total revenue on the first line and other income/expenses net amounting to $111,776,000. On the other hand, total expenses equal the cost of revenue, operating expenses, selling and administrative costs, and the income tax added together, giving $95,205,000. Applying the net profit formula, you subtract the two, giving you the bottom line figure of $16,571,000.
Other important figures that you should keep track of include operating profit, total operating expenses and gross profit margin. These are also critical indicators of your financial performance.
Example 2: Using total revenue
In the example above, it is representative of a big company, and it is multistep. The income statement (end of June 2020) for business ABC shows a sale of $60,000. The total expenses were $25,000. They also sold an old van for $3000 while spending $2000 on settling a lawsuit.
Following our net profit formula, we have total expenses equal to $25000 + $2000 = $27,000. Total revenue = $60000 + $3000 = $63,000. Hence, the net profit is $63,000 -$27,000 = $36,000.