Net income, often referred to as the "bottom line," is the amount of money an individual or business retains after all expenses, taxes, interest, and costs have been deducted from total revenue. It is the most critical indicator of a company's financial health and profitability over a specific period.
The Net Income Formula
The standard formula used in this calculator follows a multi-step accounting process:
Gross Profit = Gross Revenue – Cost of Goods Sold (COGS)
Operating Income (EBIT) = Gross Profit – Operating Expenses
Taxable Income = Operating Income – Interest Expenses
Net Income = Taxable Income – Taxes Paid
Example Calculation
Imagine a small retail business with the following monthly figures:
Calculating net income is essential for several reasons. For business owners, it determines whether the business model is sustainable. For investors, it helps evaluate the Price-to-Earnings (P/E) ratio. For individuals, net income (take-home pay) is the actual amount available for budgeting, saving, and discretionary spending after payroll taxes and deductions are removed.
function calculateNetIncome() {
// Get values from inputs
var revenue = parseFloat(document.getElementById("ni-gross-revenue").value) || 0;
var cogs = parseFloat(document.getElementById("ni-cogs").value) || 0;
var opExp = parseFloat(document.getElementById("ni-operating-exp").value) || 0;
var interest = parseFloat(document.getElementById("ni-interest-exp").value) || 0;
var taxRate = parseFloat(document.getElementById("ni-tax-rate").value) || 0;
// Perform calculations
var grossProfit = revenue – cogs;
var ebit = grossProfit – opExp;
var taxableIncome = ebit – interest;
// Taxes should only apply if taxable income is positive
var taxAmount = 0;
if (taxableIncome > 0) {
taxAmount = taxableIncome * (taxRate / 100);
}
var netIncome = taxableIncome – taxAmount;
// Formatting as currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
// Update display
document.getElementById("res-gross-profit").innerText = formatter.format(grossProfit);
document.getElementById("res-ebit").innerText = formatter.format(ebit);
document.getElementById("res-taxable").innerText = formatter.format(taxableIncome);
document.getElementById("res-tax-amount").innerText = formatter.format(taxAmount);
document.getElementById("res-net-income").innerText = formatter.format(netIncome);
// Show result area
document.getElementById("ni-result-area").style.display = "block";
}