Gross income: what is it and how to calculate it

One of the most important indicators of the organization's activities is gross income. Every entrepreneur should know what this is. This figure will help determine the effectiveness of work and adjust the strategy.

Gross income: what is it?

Gross income is the amount of funds received by an enterprise as a result of its core business. This is the final financial indicator, which reflects the cumulative result of the enterprise's activities in the field of economy, management and marketing. It is worth mentioning, considering the gross income, that this is not only an individual, but also a macroeconomic indicator. Thus, gross income is considered at the state level.

In some countries, this term is associated with a concept such as "turnover". If we are talking about non-profit organizations (public, charitable foundations, etc.), gross income means the annual amount of funding or donations.

Value of gross income

Gross income from the sale of products is the basis for the functioning of the enterprise. Its meaning is as follows:

• Compensates depreciation charges that fall on non-current assets;
• Is used to pay taxes, fines and penalties, as well as other deductions to the state treasury;
• Is the source of wages and bonuses for employees;
• Acts as the basis for the formation of net profit and the further development of the enterprise.

Formation of gross income

One of the most important indicators in the activity of any organization is gross income. What is it, you can understand by understanding the mechanism of its formation. So, this process includes several stages:

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

What is included in gross income

This indicator is much broader than cash receipts from the main activity of the organization. So, the components of gross income are as follows:

• Funds received by the organization on the court's decision;
• Fines paid by third parties;
• Material assets that are in storage in accordance with the contract;
• Insurance reserve;
• Financial assistance or charitable contributions;
• Royalties and dividends;
• Income from the sale of securities;
• Insurance receipts.

The intangible component

It is worth noting that gross income also has an intangible component. It can include income from:

• Investment and reinvestment;
• Savings on pension accounts;
• Non-cashed bank deposits;
• Assistance in international financial agreements.

How to calculate

Calculation of gross income is carried out in several stages. So, you need to perform the following actions:

1. To begin with, you need to calculate the total gross income. To do this, it is necessary to subtract direct material costs from cash receipts from the main activity .
2. Determine the total value of the output for the period (if necessary, take into account the added value).
3. Find a product of the number of units of goods (services) and the cost of their sale. To the received indicator all other components of the gross income are added.

Methods of calculation

There are several methods for calculating gross income. So, to calculate this indicator for turnover, you need to find a product of total turnover and trade markup, then divide the obtained number by 100. This technique can be used if the premium for all products is the same.

If an enterprise produces a wide range of products with different trade markups, you need to find a product for each product separately, and then sum it. The result, as in the previous case, is divided by 100.

The simplest way to calculate gross income, which is appropriate in almost any enterprise, is the average percentage of gross income. This indicator is multiplied by the total turnover and divides the product by 100.

Factors affecting gross income

Net gross income is one of the key indicators that reflect the results of the company's operations. The following factors can influence this value:

• The volume of products, as well as its range and structure. The more goods will be sold, the higher the gross income will be.
• The amount of trade markup. Its feasibility and validity is inextricably linked with the indicator of gross income.
• Availability of additional services that increase the prestige of the product and stimulate demand for it.
• The availability of additional revenue, as well as the quantity and stability of its sources.

Planning of gross income

Knowing how to calculate gross income, you can plan its value in advance. This process is simply necessary for the successful operation of the enterprise. Simplified, this process can be explained as a prediction of the difference between the reported and planned indicator. It is worth noting that the planned amount of gross income does not include VAT, proceeds from the withdrawal of fixed assets and sales of intangible assets and currency.

Competent planning is the key to the prosperity of the enterprise. As for gross income, this indicator should include not only costs, but also net profit, the value of which will be much higher than in the reporting period. Also, in addition to the expected revenues, it is important to plan for possible losses when planning. They can be:

• Losses of past periods that can be identified in the planned year;
• Losses from markdowns due to a decrease in demand;
• Risk of cancellation of orders;
• Possible legal costs and penalties.

Factors of success

It is worth mentioning, studying the gross income, that this is one of the main indicators that illustrate the results of the organization's activities. In order for her work to be successful, it is worth sticking to such principles:

• It is important to find the optimal price-quality ratio;
• Production facilities in the enterprise should be sufficient to produce a quantity of products that satisfies consumer demand;
• You need to constantly monitor the market situation, in order to make timely changes in the range or expand it;
• Special attention should be given to logistics (the cost of delivering products to the consumer should be minimal).

Conclusion

When assessing the financial condition of an organization or a whole state, it is absolutely necessary to calculate the gross income. This is the foundation of the well-being of the enterprise, which lays the ground for further development.