How to Calculate Profits From the Balance Sheet

Each year, companies produce an annual report that details the company's financial situation and includes the company's income and expenses from the past year. Often, the report includes the company's profits. However, if it does not state the profits, you can calculate it from the other numbers on the balance sheet. In addition, by calculating the net profit step by step from the balance sheet, you gain an understanding of the company's finances and where its money goes.

Each year, companies produce an annual report that details the company's financial situation and includes the company's income and expenses from the past year. Often, the report includes the company's profits. However, if it does not state the profits, you can calculate it from the other numbers on the balance sheet. In addition, by calculating the net profit step by step from the balance sheet, you gain an understanding of the company's finances and where its money goes.

Find the company's total revenues for the year on the balance sheet.

Subtract the cost of acquiring or producing the goods the company sells to find the company's gross profit. For a timber company, this would include the labor used to chop down the trees but not the cost of the sales team. For a clothing store, this would include the costs to buy the clothes. For example, if a company has $20 million in total revenues and $12 million in costs to acquire the goods it sells, subtract $12 million from $20 million to get $8 million.

Subtract the administrative and sales costs the company incurs in selling the product from the gross profit to find the net profit before taxes. In this example, if the company incurs $3 million in costs to sell the goods, subtract $3 million from $8 million to get a net profit of $5 million before taxes.

Subtract the taxes from the net profit before taxes to find the company's net profits for the year from the balance sheet. Completing the example, if the company pays $3.5 million in taxes, subtract $3.5 million from $5 million to get $1.5 million as the net profit.

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About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."