Gross income: what is it and how to calculate it

One of the most important indicators of the organization is gross income. That is, everyone should know the entrepreneur. This figure will help determine the effectiveness and adjust the strategy.

Gross income: what is it?

Gross income is the amount received by the enterprise in the implementation of its main activities. This is the final financial measure which reflects the combined results of the company in the field of Economics, management and marketing. It is worth noting, considering the gross income that it is not only individual, but also a macroeconomic indicator. Thus, gross income is considered at the state level.

In some countries the term is associated with a term such as "turnover". If we are talking about nonprofit organizations (public charities, etc.), gross income refers to the annual amount of funding or non-repayable contributions.

The Value of the gross revenue

Gross income from sales of products is the basis of functioning of the enterprise. Its value consists of the following:

• Reimburse depreciation charges, which are non-current assets;
• Can be used for the payment of taxes, fines and penalties, and other payments to the state Treasury;
• Is the source of wages and bonuses for employees;
• Acts as a basis of formation of net profit and further development of the company.

Gross income

One of the most important factors in any organization is gross income. That is, it is possible to understand, to understand the mechanism of its formation. So, this process involves several steps:

Recommended

Competition is the rivalry between participants in the market economy. Types and functions of competition

Competition – a concept inherent in a market economy. Every participant in the financial and commercial relations, seeks to take the best place in the environment where it must operate. For this reason, there is stiff competition. The struggle ...

The mayor: powers and duties. Elections of the mayor

Normal functioning of all systems of the settlement, competent and timely execution of tasks in the sphere of economic, social and other areas of development is impossible without control of the mayor. But how voters can evaluate the quality of work ...

Francisco Franco: biography and political activities

When the civil war began in Spain, General Francisco Franco (Francisco Paulino of Hermenegildo Teodulo Franco Bahamonde - full name) celebrated its arakatzailea, but he seemed already tired of life and much older than his years. To unpresentable appe...

1. Production of goods (or services).
2. Launch with the definition of niche.
3. Implementation to the end user.
4. Income.

What is included in gross income

This index is much broader than cash income from the main activities of the organization. Thus, the components of the gross income the following:

• Funds received by the organization by decision of a court;
• Fines paid by third parties;
• Material values being stored in accordance with the contract;
• Insurance reserves;
• Financial assistance or charitable contributions;
• Royalties and dividends;
• Revenue from the sale of securities;
• Insurance proceeds.

Intangible component

It is Worth noting that gross income also has an intangible component. This category includes income from:

• Capital investment and reinvestment;
• Savings accounts for pension purposes;
• Cashed out of Bank deposits;
• Assistance in international financial agreements.

How to calculate

Calculation of gross income is performed in several stages. So, you must perform the following steps:

1. First you need to calculate the total gross income. For this you need of cash receipts from operating activities deduct direct material costs.
2. To Determine the full cost of production for the period (if necessary consider the value added).
3. Find the product of the number of units of the goods (services) and costs of implementing them. To the resulting figure add all other components of gross income.

Methods of payment

There are several methods of calculating gross income. To calculate this measure of turnover, and need to find the product of the total turnover and trade margin, and then divide the resulting number by 100. This technique can be used, if the premium for all products is the same.

If the company produces a wide range of products with different trade allowances, you need to find the product for each item separately, and then summed. The result, as in the previous case, divide by 100.

The easiest way to calculate gross income, which is relevant to almost any enterprise - the average percentage of the gross income. This figure is multiplied by the total turnover and divide the product by 100.

Factors affecting net income

Gross profit margin - this is one of the key indicators that reflect the results of operations of the company. This value can be influenced by the following factors:

• The Volume of production and assortment and structure. The more goods will be sold, the higher the gross income.
• The Size of the markup. Its feasibility and validity is inextricably linked with the gross income.
• The Availability of additional services that enhance the prestige of the product and stimulate demand.
• The Availability of additional revenue, as well as the number and stability of its sources.

Planning gross income

Knowing how to calculate gross income, you can plan in advance its value. This process is necessary for the success of the enterprise. Simplistically thisthe process can be explained as precognition of the difference between the reported and planned indicators. It should be noted, in the planned amount of gross income do not include VAT, proceeds from withdrawal of fixed assets and sale of intangible assets and currencies.

Good planning is the key to prosperity. As for gross income, this figure should be laid down not only costs, but also net profit, the value of which is significantly higher than in the reporting period. Also, in addition to the expected revenues when planning it is important to consider possible losses. They can be the following:

• The losses of previous periods that can be identified in the plan year;
• Losses from the markdown of goods in connection with a decrease in demand;
• Risk of cancellation of orders;
• Possible court costs and fines.

Success Factors

It is Worth noting, studying gross income that is one of the main indicators illustrating the performance of the organization. To her the operation was successful, you should adhere to these principles:

• To establish a good reputation in the market, it is important to find the optimal ratio of price and quality;
• Production capacity of the enterprise must be sufficient to produce a number of products that meet consumer demand;
• You need to constantly monitor market conditions to make timely changes in range or increase it;
• Special attention should be paid to the logistics (the cost of shipping the product to the consumer should be minimal).

Conclusion

When assessing the financial condition of an organization or of a state, of course, is calculated the gross income. This is the basis of prosperity of the enterprise, which provides opportunities for further development.