How to Calculate Net Earnings

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Determining a business’s net income gives the business owner a true idea of how profitable the business is. When an employee receives his paycheck each pay period, his pay stub reflects net earnings, which is generally less than his gross earnings. Both the businessperson and the employee should know how to determine their net earnings, so they understand how to calculate their “bottom line” income.

Business Earnings

Determine the company’s revenue--how much money the company has made for the period of time you are calculating.

Deduct the cost of sales and all other expenses the business has incurred to arrive at the before-tax earnings.

Minus applicable federal and state taxes to reach your net earnings--your after-tax profit.

Employee Earnings

Determine your gross pay, which is the amount prior to any deductions occurring.

Subtract involuntary deductions, such as federal, state (if applicable), Social Security and Medicare taxes and garnishments (if applicable).

Deduct voluntary deductions, such as health benefits and retirement contributions, to arrive at your net earnings.

Tips & Warnings

  • Your business's net income should be indicated at the top of your cash flow statement--the financial statement outlining the cash exchanged between the company and the public.

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