Expenses are the costs a company incurs running its business. Revenue is the money a company earns by selling its products or services before paying expenses. Net income, or profit, equals total revenues from an accounting period minus total expenses from the same period. You can calculate a company’s net income using its statement of stockholders’ equity. This statement shows the items that cause a change in stockholders’, or owners’, equity during an accounting period. You can use net income to calculate total expenses. Lower total expenses results in higher profit.
1. Find a public company’s income statement and statement of stockholders’ equity in either its 10-Q quarterly report or in its 10-K annual report. You can download these reports from the investor relations section of the company’s website or from the U.S. Securities and Exchange Commission’s online EDGAR database.
2. Identify the company’s total revenue, listed on the income statement. For example, assume a company has $500,000 in total revenue.
3. Determine the amounts of beginning stockholders’ equity, ending stockholders’ equity, shares issued, treasury stock purchased and cash dividends paid, listed on the statement of stockholders’ equity. The statement shows amounts of treasury stock purchased and cash dividends paid enclosed in parentheses to designate that these amounts decrease stockholders’ equity. In this example, assume the company has $600,000 in beginning equity, $720,000 in ending equity, $50,000 in shares issued, $10,000 in treasury stock purchased and $20,000 in dividends paid.
4. Add together ending stockholders’ equity, dividends paid and treasury stock purchased. In this example, add together $720,000, $20,000 and $10,000 to get $750,000.
5. Subtract shares issued and beginning stockholders’ equity from your result to calculate the company’s net income or net loss. A positive result represents net income. A negative result represents a net loss. In this example, subtract $50,000 and $600,000 from $750,000 to get $100,000 in net income.
6. Subtract the net income or net loss from total revenue to calculate total expenses. Treat a net loss as a negative number in your calculation. Concluding the example, subtract $100,000 from $500,000 to get $400,000 in total expenses.