INCOME STATEMENT – MEASUREMENT OF PROFITABILITY – Berjaya Mutual Sdn Bhd (2024)

FAQs

How do you calculate profitability on an income statement? ›

Gross Profit = Net Sales – Cost of Goods Sold. Operating Profit = Gross Profit – (Operating Costs, Including Selling and Administrative Expenses) Net Profit = (Operating Profit + Any Other Income) – (Additional Expenses) – (Income Taxes)

How to Calculate Profitability Ratio. A profitability ratio is a financial metric that divides a profit metric by the net revenue generated in the corresponding time period, which provides insights in terms of understanding a company's historical margin profile (and future trajectory).

Through the income statement, you can witness the inflow of new assets into a business and measure the outflows incurred to produce revenue. Profitability is measured by revenues (what a company is paid for the goods or services it provides) minus expenses (all the costs incurred to run the company) and taxes paid.

The primary purpose of an income statement is to convey details of profitability and business activities of the company to the stakeholders. It also provides detailed insights into the company's internal activities. This can be used for comparison across different businesses and sectors.

The simplest measure of profitability is net income, which is revenue minus expenses. This shows the amount of income you generate from your business after accounting for all expenses.

= Gross profit / Net sales * 100.

When the selling price and the cost price of a product is given, the profit can be calculated using the formula, Profit = Selling Price - Cost Price. After this, the profit percentage formula that is used is, Profit percentage = (Profit/Cost Price) × 100.

Gross profit margin, also known as gross margin, is one of the most widely used profitability ratios. Gross profit is the difference between sales revenue and the costs related to the products sold, the aforementioned COGS.

Examples are gross profit margin, operating profit margin, net profit margin, cash flow margin, EBIT, EBITDA, EBITDAR, NOPAT, operating expense ratio, and overhead ratio.

How to read an income statement for dummies? ›

Your income statement follows a linear path, from top line to bottom line. Think of the top line as a “rough draft” of the money you've made—your total revenue, before taking into account any expenses—and your bottom line as a “final draft”—the profit you earned after taking account of all expenses.

To analyze product profitability, you can calculate the profit margin for each product. To do this, first determine the total cost and revenue generated by the product. Next, subtract the total cost from the total revenue to find the net profit for the product.

Some of the most common ratios include gross margin, profit margin, operating margin, and earnings per share. The price per earnings ratio can help investors determine how much they need to invest in order to get one dollar of that company's earnings.

The final figure—or bottom line—on an income statement is the net profit (or net income) or net loss. It is calculated by subtracting all expenses from revenues. If revenues are more than expenses, the result is a net profit. If expenses exceed revenues, a net loss results.

To calculate Net Income on a balance sheet, take your total revenue and subtract all expenses, including cost of goods sold, operational costs, interest and taxes. The resulting number represents the net income, a key indicator of a company's financial health and profitability.

Net income is synonymous with a company's profit for the accounting period. In other words, net income includes all of the costs and expenses that a company incurs, which are subtracted from revenue. Net income is often called "the bottom line" due to its positioning at the bottom of the income statement.

Subtract all direct and direct costs from total revenue.

If what remains is a positive number, congratulations: You have a profitable product.