How this calculator works
Net income is the bottom line: what is left after every expense, including interest and tax. The calculation follows the income statement. Revenue less cost of sales gives gross profit. Subtracting operating expenses such as salaries, marketing, rent and depreciation gives operating income. Subtracting interest gives income before tax. Applying the tax rate gives the tax charge, and subtracting it gives net income. The tax rate is the effective rate for the period, not necessarily the statutory rate, because deductions, credits and losses can move it.
Formula
Gross profit = revenue - cost of sales. Operating income = gross profit - operating expenses. Income before tax = operating income - interest. Total taxes = income before tax × tax rate. Net income = income before tax - total taxes. When solving for revenue or a cost line, the income before tax implied by a target net income is net income / (1 - tax rate).
Worked example
Revenue of $1,000,000 less $600,000 of cost of sales gives gross profit of $400,000. After $200,000 of operating expenses, operating income is $200,000. Interest of $30,000 leaves income before tax of $170,000. At a 25 per cent tax rate the tax charge is $42,500 and net income is $127,500.
Advertisement
Frequently asked questions
Is net income the same as profit after tax?
Yes, in most contexts. Net income, net profit and profit after tax all refer to the bottom line. Some statements further split it into profit from continuing operations and results from discontinued operations, so check the line labels.
What is the effective tax rate?
Total tax expense divided by income before tax. It can differ from the statutory rate because of permanent differences, tax credits, different rates in other jurisdictions and changes in deferred tax. This calculator applies the rate you enter and reports the resulting effective rate, so the two match by construction unless you solve for taxes.
Why does the tax rate need to be below 100 per cent?
Net income is income before tax multiplied by (1 - tax rate). At exactly 100 per cent, net income is zero regardless of revenue, so a target net income cannot be used to recover revenue or a cost. The calculator rejects that case.