How Do You Calculate Net Operating Income?
Net operating income (NOI) is the income you derive from your business after you have deducted your operating costs. In effect, it is your income before taxes and interest have been deducted. NOI is regarded as a good indication of how well a company is doing, as it is not easily manipulated by management. In simple terms, it is calculated by subtracting your operating expenses from your gross profit. Let’s use an example of someone who operates a neighborhood store. Compute your gross sales. This is the total receipts from all goods sold. Let’s agree that this amounted to $50,000. This is your gross income. Subtract the purchase price of the goods. If you bought the goods for $20,000, then $50,000 – $20,000 = $30,000 = gross profit. Subtract your operating expenses to compute your NOI. If you paid salaries in the amount of $4000, had other costs such as utilities totaling $1000, and your rent was $2000, your operating expenses are: $4000 + $1000 + $2000 = $7000 Your NOI is calculated
