How to calculate net income
Learn how to calculate net income, with the formula, a worked example and net profit margin.
December 2023 | Published by Xero
Published Monday 17 August 2026
Table of contents
Net income (and its equation) is the same as net profit.
Key takeaways
- Net income is the amount left after subtracting all expenses, interest and taxes from your total revenue, giving you the clearest picture of your business's profitability.
- Knowing how to calculate net income helps you make informed decisions about pricing, hiring, expansion and managing cash flow.
- In Singapore, companies pay corporate income tax at a headline rate of 17%, while sole proprietors report business income under personal income tax.
- Cloud accounting software can automate calculations and reduce errors, saving you time and giving you real-time visibility into your finances.
What is net income?
Net income is the amount of money your business keeps after subtracting all expenses, interest and taxes from total revenue. Understanding how to calculate net income gives you a clear view of your actual profitability, helping you plan for growth, manage cash and make confident business decisions.
Other names for net income
You may see net income referred to by other names. Net profit, net earnings and the bottom line all mean the same thing: the final profit figure after every cost has been deducted.
Why net income matters
Net income shows whether your business is truly profitable after covering every cost. It helps you decide when to reinvest, hire staff or adjust pricing.
Lenders and investors look at net income to assess your financial health and ability to repay loans or generate returns. A consistent, positive net income signals that your business can sustain itself and grow over time.
Net income formula
There are two common ways to express the net income formula. The simple version is:
Net income = total revenue − total expenses − taxes
For a more detailed breakdown, use:
Net income = total revenue − cost of goods sold − operating expenses − interest − taxes
Here is what each component means:
- Total revenue: all income earned from sales, services and other sources during the period.
- Cost of goods sold (COGS): the direct costs of producing or purchasing the goods you sell.
- Operating expenses: everyday costs such as rent, utilities, salaries and marketing.
- Interest: payments on loans, credit lines or other borrowings.
- Taxes: for Singapore companies, corporate income tax applies at a headline rate of 17%. Sole proprietors pay personal income tax on their business profits through IRAS.
How to calculate net income step by step
Follow these five steps to work out your net income for any accounting period.
1. Add up your total revenue
Start by totalling all money earned from sales, services and any other income sources. Your profit and loss report shows this figure at the top, making it easy to find.
2. Calculate your cost of goods sold
Add up the direct costs of making or buying the products you sold. These include raw materials, manufacturing costs and freight. Revenue minus COGS gives you gross profit.
3. Subtract your operating expenses
Deduct everyday business costs such as rent, utilities, wages, insurance and marketing. These are the expenses required to keep your business running but not directly tied to producing goods.
4. Deduct interest payments
Subtract interest charges on any loans, overdrafts or credit facilities. This gives you your profit before tax.
5. Subtract taxes
Finally, deduct your tax liability to arrive at net income. Singapore companies pay corporate income tax at a headline rate of 17%, with partial exemptions available for qualifying income. Sole proprietors do not pay corporate tax; instead, business profits are taxed under personal income tax and filed with IRAS.
Example of a net income calculation
A small retail business in Singapore has the following figures for the quarter:
- Total revenue: S$35,000
- Cost of goods sold: S$14,000
- Operating expenses: S$3,000
- Taxes: S$6,000
Using the formula:
S$35,000 − S$14,000 − S$3,000 − S$6,000 = S$12,000
The business has a net income of S$12,000 for the quarter.
Net income vs gross income
Gross income (also called gross profit) is what remains after subtracting the cost of goods sold from revenue. Net income goes further by also subtracting operating expenses, interest and taxes.
In short, gross profit shows how efficiently you produce or source goods, while net income shows your overall profitability. For a deeper comparison, see gross profit vs net profit.
Net income vs operating income
Operating income measures profit from core business activities before interest and tax. It equals gross profit minus operating expenses.
Net income is the final figure after deducting interest and taxes as well. If you want to evaluate business performance independently of financing and tax structure, operating income is useful. For the full picture, look at net income. Learn more about net operating profit after tax.
Net income vs cash flow
Net income is an accounting measure based on accrued revenue and expenses, regardless of when cash changes hands. Cash flow tracks the actual movement of money in and out of your business.
A business can show positive net income yet struggle with cash flow if customers pay late or large expenses fall due at once. Monitoring both figures helps you stay solvent. For tips on planning ahead, see cash flow forecasting.
Calculating net income from gross profit
If you already know your gross profit, you can find net income by subtracting the remaining costs:
Net income = gross profit − operating expenses − interest − taxes
Using the earlier example, gross profit is S$21,000 (S$35,000 − S$14,000). Then:
S$21,000 − S$3,000 − S$6,000 = S$12,000 net income
For more detail, see calculating net profit.
How to calculate net profit margin
Net profit margin shows how much of every dollar in revenue becomes profit. The formula is:
Net profit margin = (net income ÷ revenue) × 100
For example, if your net income is S$12,000 on S$100,000 in revenue:
(S$12,000 ÷ S$100,000) × 100 = 12%
A net profit margin around 10% is often considered healthy for small businesses, though benchmarks vary by industry. Use the net profit margin calculator to quickly check your own figures.
Where to find net income on your financial statements
Net income appears on several key reports. On the income statement (profit and loss), it is the bottom line after all revenues and expenses. It then flows into retained earnings on the balance sheet, increasing or decreasing your equity. The cash flow statement also starts with net income before adjusting for non-cash items and working capital changes.
For a full overview of these reports, see financial statements.
Common mistakes when calculating net income
Errors in your net income calculation can distort your view of business performance. Watch out for these common pitfalls:
- Forgetting to include all expenses, such as bank fees, subscriptions or small purchases.
- Mixing personal and business transactions, which skews your figures and complicates tax filing.
- Ignoring depreciation, which spreads the cost of assets over time and affects your taxable income.
- Mismatching revenue and expenses across different periods, leading to inaccurate profit figures.
- Relying on manual spreadsheets that are prone to formula errors. Cloud accounting software can automate calculations and flag discrepancies.
Track your net income with Xero
Xero Accounting Software brings your income and expenses together in one place, so you can see your net income at a glance. Automated bank feeds, real-time reports and easy integrations help you stay on top of your numbers without hours of manual work. You can view profit and loss reports whenever you need them and share access with your accountant for faster collaboration.
Ready to simplify your finances? Get one month free and see how Xero can help your Singapore business track profitability with confidence.
FAQs on how to calculate net income
Here are answers to common questions about calculating and using net income.
Is net income the same as profit?
Yes, net income and net profit mean the same thing. Both refer to the amount remaining after subtracting all expenses, interest and taxes from total revenue.
Is net income before or after tax?
Net income is calculated after tax. It represents the final profit once corporate or personal income tax has been deducted.
What is a good net income for a small business?
A net profit margin around 10% is often considered a healthy benchmark for small businesses. However, this varies by industry, with some sectors typically running higher or lower margins.
How often should you calculate net income?
Most small businesses calculate net income monthly or quarterly. Regular tracking helps you spot trends, manage cash flow and prepare for tax obligations with IRAS.
What's the difference between net income and operating income?
Operating income is profit from core operations before interest and tax, while net income is the final figure after these are deducted. Net income gives a fuller view of overall profitability.
Are net income, net profit and net earnings the same?
Yes, these terms are interchangeable. All three refer to the bottom line after all costs, interest and taxes have been subtracted from revenue.
Related terms
Learn more about calculating net income
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.