12/5/2023 0 Comments Revenue minus expenses![]() ![]() Cash Flow?Īs a measure of profitability, the net profit metric can misleadingly portray a company’s financial well-being from a liquidity and solvency standpoint.įor instance, a company could consistently produce positive net earnings yet struggle to collect cash payments for sales made on credit – i.e. Right below the net profit line item, we can also see a separate section where the earnings per share (EPS) are calculated on a basic and diluted basis.Īpple Income Statement (Source: Apple 2021 10-K) What is the Difference Between Net Income vs. Learn More → Net Margin by Sector (Source: Damodaran) How to Find Net Income on the Income Statement?Īs we can see from the screenshot of Apple’s 2021 income statement, the beginning line item is revenue, and after deducting all operating and non-operating expenses, the ending line item is net income. Net Profit Margin (%) = Net Income ÷ Revenue The calculation of a company’s net profit is equal to its pre-tax income, or earnings before taxes (EBT), minus its tax expenses. Once the company’s pre-tax income has been reduced by its tax expense, we’ve arrived at the company’s net income. ![]() The taxes owed to the government are based on the corporate tax rate and jurisdiction of the company among various other factors (e.g. The most common examples of non-operating costs are interest expense, net and any one-time expenses such as restructuring charges and write-offs (or write-downs).Īfter those non-operating costs have been subtracted from EBIT, we’re left with the company’s pre-tax income, or earnings before taxes (EBT), i.e. COGS and OpEx) have been deducted, so all the costs onward are non-operating. the “top line” of the income statement, we first deduct COGS to calculate the gross profit metric.įrom the gross profit line item, we subtract operating expenses (OpEx), resulting in the company’s operating income, or earnings before interest and taxes (EBIT).ĮBIT represents the point on the income statement where all operating costs (i.e.
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