How to Calculate Corporate Profits

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Subtract total expenses from total revenues to determine corporate profits.
Subtract total expenses from total revenues to determine corporate profits. (Image: calculator image by L. Shat from Fotolia.com)

Most companies are in business to do one thing: make a profit. Profits are calculated by subtracting total expenses from total sales or revenue. However, it is important for businesses to differentiate between different types of expenses. For instance, some expenses are considered operating costs whereas other expenses are for income taxes due.

Determine the period for calculating corporate profits. Most companies report sales by quarter and by fiscal year. Let's say you want to calculate corporate profits for the most recent quarter. The process for calculating corporate profits is the same, however, regardless of the period used.

Determine the company's total revenue. This is total sales for the company. Let's say total sales for the previous quarter are $100,000.

Calculate gross profit. Determine the cost of goods sold (COGS) and subtract from total sales. The COGS is the cost of all materials and inventory used for the past quarter. Let's say the COGS is $50,000, so the calculation is $100,000 - $50,000 = $50,000.

Determine operating income. Subtract operating expenses from gross profit for operating income. If operating expenses are $5,000, the calculation is: $50,000 - $5,000 = $45,000.

Calculate corporate profits. Subtract taxes and interest expense (or income) from operating income. Let's say that taxes are $5,000 and interest expense is $1,000. The calculation is: Operating income - taxes - interest expense = X, or $45,000 - $5,000 - $1,000 = $39,000.

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