How to Calculate Net Income With a Percentage of the Profit Margin

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Profit margin is the net income for each dollar of sales.
Profit margin is the net income for each dollar of sales. (Image: Thinkstock/Comstock/Getty Images)

Net income is a company's profit after accounting for all other expenses, income and taxes. It is often the best indicator of the current operating state of a company. Also referred to as net profit or the "bottom line," the figure appears at the bottom of the income statement. The percentage of profit margin, on the other hand, are the earnings the company retains on every dollar of sales or revenue. The higher percentage of profit margin indicates better control on expenses and, therefore, a more profitable company. Here is how to calculate the net income when the percentage of profit margin is among the known values.

Calculate the net income for each dollar of sales. If the percentage of profit margin is the only known value, then you can calculate the net income for each dollar of sales dividing the percentage of profit margin by 100. For example, if 25 percent is the given percentage of profit margin then the net income for each dollar of sales equals $0.25.

Calculate the net income or net profit. If, along with the percentage of profit margin, the amount of revenue is also given then you can calculate the actual amount net income. Also referred to as the total sales or gross income or "top line," revenue is the amount of money a company makes from its business activities. The net income after taxes is equal to the percentage of profit margin times revenue divided by 100. For example, if 25 percent is the given percentage of profit margin and $200,000 the revenue from sales, then the net income after taxes = (25 X 200,000)/100, which equals $100,000.

Deduct taxes or other residue from net income, if needed. Typically, percentage of profit margin is a metric accounted after all deductions. Therefore it is also referred to as the percentage of net profit margin. But sometimes accountants retain taxes, interests or other expenses to calculate the percentage of gross profit margin or the percentage of operating profit margin. This is done to know how much profit margin the company has made before certain taxes, interests or expenses. If this information is given, from the value obtained from step 2, make sure to deduct each of the known expense, tax or interest items to determine the net income.

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