There are three main financial statements in the annual report. The net income statement is one of these statements. At its core, the net income statement is meant to provide a breakdown of income for the company. The form used to calculate income is dictated by the IRS and supported by the U.S. Securities and Exchange Commission. After determining net income, a certain amount is distributed to owners and a certain amount is usually retained by the company as earnings.
Gather your data. You will need to know total revenues or sales, the total cost of goods or services sold, operating costs, interest expense and the current tax rate. You can usually obtain this information from the chart of accounts through accounting.
Subtract the cost of goods sold from sales in order to calculate gross profit. For instance, if sales is $100,000 and the cost of goods sold is $20,000 then gross profit is $80,000.
Subtract operating costs from gross profit for operating profit. For instance, if operating costs are $10,000 then operating profit is $70,000.
Subtract interest expense from operating income. If interest expense is $5,000 then operating income after interest expense is $65,000.
Calculate the tax provision. If the historical tax rate is 30 percent, then take 30 percent of operating income after interest expense as the tax provision. In this example, 30 percent of $65,000 is $19,500. Therefore, net income available for distribution is $45,500.
Create a spreadsheet providing the distribution percentage for all owners of the company. For instance, if a company plans on issuing 30 percent of net income in dividends, 20 percent to management and the rest to retained earnings the distribution amount is $13,500 to dividends, $9,100 to management and $22,750 to retained earnings or the company.