Most chief executive officers are tasked with creating and growing sales. In general, the more sales a company has, the better its earnings will be, which is a good thing for shareholders. As a result, company leadership tends to focus almost religiously on ways to increase revenues while lowering costs. The income statement provides an overview of company revenues and expenses. The final line item on the income statement is the net income line. There are three levels of income revenue on the income statement.
Gather your data. You will need total revenues, the cost of goods sold, operating costs, interest expense and an estimate for taxes -- also referred to as the tax provision. You can obtain these line items from the chart of accounts or by asking the accounting department for a list of sales and expenses.
Calculate gross profit. This is calculated by subtracting the cost of goods sold from revenue and is often used as a measure of a company's overall business model. It is the first level of income revenue. For instance, if revenues are $100,000 and the cost of goods sold is $50,000, then gross profit is $50,000.
Calculate operating income revenue. Subtract operating expenses from gross profit. Analysts look at operating income revenue as a measure of real earnings. It is also referred to as EBIT, or earnings before interest and taxes. For instance, if gross profit is $50,000 and operating expenses are $39,000 then operating income is $11,000.
Calculate total income revenue. Companies paying interest on debt can deduct this amount from operating income for tax purposes and so it is subtracted from operating income before estimating the tax provision, which is calculated on a percentage basis. For instance, if operating income is $11,000 and interest expense is $1,000, then taxes are computed based on an adjusted net income of $10,000. If the tax rate is 30 percent, the tax estimate will be $3,000. Total income revenue is then $7,000 or $10,000 minus $3,000.