These are also critical indicators of your financial performance. Other important figures that you should keep track of include operating profit, total operating expenses and gross profit margin. Applying the net profit formula, you subtract the two, giving you the bottom line figure of $16,571,000. On the other hand, total expenses equal the cost of revenue, operating expenses, selling and administrative costs, and the income tax added together, giving $95,205,000. Net income (profit): $111,776,000 - $95,205,000 = $16,571,000įrom the edited figures above, the company's total revenue is the sum of total revenue on the first line and other income/expenses net amounting to $111,776,000. General and administrative expenses = $4,754,000 Research and development expenses = $14,726,000 The financial statement for Microsoft for the period that ended Income: Often referred to as a gross receipts tax, some states and localities require businesses to pay a certain level of tax calculated on each dollar of sales that the company makes.The following are examples of profit and loss calculations to help you understand the net profit calculations and the application of the two different versions of the net profit formula. Calculating taxes owed: In some jurisdictions, tax preparation requires sales revenue measurement.They can also review monthly sales to determine if the company’s volume fluctuates seasonally. Examining sales trends: Doing this over time allows business owners to discover trends, such as whether their customers purchase more on certain days.Reviewing how total revenue varies with pricing changes is the first step in creating this type of strategy. Determining if pricing strategy is maximizing revenue: A price maximization strategy attempts to make pricing decisions that generate the greatest revenue for the company.It is best used as a measure of growth and size when comparing similar companies in the same industry. Assessing the growth or size of a company: Revenue is a good metric to gauge a company’s growth and size.However, businesses also incur other costs that are unrelated to products but are essential to the business as a whole. We deduct COGS from sales to arrive at the gross profit so that we’ll know how much we earned from product sales alone. Gross Profit = Sales – Cost of Goods SoldĬOGS is the amount you paid to purchase or manufacture the goods for sale. But if you’re purely a merchandising business, the term cost of goods sold is more appropriate. Microsoft used the term “cost of revenue” since it offers goods and services. Arriving at the gross profit requires deducting direct costs or COGS. As revenues increase, gross profit will increase as well. Total revenues and gross profit have a direct relationship. No business would sell products below cost. Under normal circumstances, gross profit will always be a positive number because businesses always sell at a markup. In Microsoft’s Income Statement, it has a gross profit of $135.620 million from product sales. Gross Profit Section of Microsoft’s Income StatementĪlso called gross margin, gross profit measures the business’ profit based solely on the sale of goods and services.
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