Net Income Calculation for Analysis, Inc. | CFA® Level 1 Exam Preparation

Net Income Calculation

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Question

Analysis, Inc. had gross sales of 5,000 last year. Its operating expenses amounted to 339 and cost of goods sold equaled 2,386. Analysis faces a corporate tax rate of 37% and had no other revenues or costs last year. Its net income after taxes was ________.

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Explanation

Analysis' gross profit = gross sales - cost of goods sold = 5,000 - 2,386 = 2,614. The operating expenses are deductible for tax purposes. Hence, pre-tax income equaled 2,614 - 339 = 2,275. Therefore, its after-tax income equals 2,275*(1-0.37) = 1,433.

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