Final answer:
The Net Income (loss) from Operations is calculated by subtracting the Cost of Goods Sold and Total Operating Expenses from the Gross Profit on Sales, which is in turn calculated by deducting the Cost of Goods Sold from the Total Revenue. An example calculation with hypothetical figures would result in a Net Income from Operations.
Step-by-step explanation:
To compute the Net Income (loss) from Operations, several financial elements must be considered and summed accordingly. This accounting measure is essential for businesses of all sizes and complexities. It is the profit a company makes after subtracting all its costs from its total revenues. Specifically, the formula for calculating the net income from operations is Gross Profit on Sales minus Total Operating Expenses. Gross Profit is determined by subtracting the cost of goods sold (Cost of Goods Sold) from the total revenue, which is the income earned from selling products or services.
Therefore, Net Income (loss) from Operations is calculated as:
- Total Revenue — derived from the sale of goods or services.
- Deduct Cost of Goods Sold — the direct costs attributable to the production of the goods sold by a company.
- The result is Gross Profit on Sales.
- Subtract Total Operating Expenses — the expenses required to run the company that are not directly tied to the production of goods or services.
- The final result is Net Income (loss) from Operations.
For example, if a company has total revenues of $1,000,000, Cost of Goods Sold of $600,000, and Total Operating Expenses of $350,000, its Net Income from Operations would be calculated as follows:
Total Revenues ($1,000,000) - Cost of Goods Sold ($600,000) = Gross Profit on Sales ($400,000)
Gross Profit on Sales ($400,000) - Total Operating Expenses ($350,000) = Net Income from Operations ($50,000)