Net Income After Taxes (NIAT) - What is NIAT?
Net Income After Taxes (NIAT) is the amount of money that a business has once expenses, tax, and other liabilities have been deducted
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Net Income After Taxes is more than just the income after tax. It is essentially the “bottom line” for the business and provides the total earnings after all the necessary subtractions for costs, depreciation, and tax as well.
NIAT is usually calculated and stated as a number amount. It is also commonly broken up into a per share value in the case of a public company. NIAT will appear as an official number for the business on an annual report, for example.
How to calculate NIAT
Calculating the NIAT for a business might seem fairly straightforward, however, it’s important to take into account all expenses incurred by the business for the time period for which it is being determined.
Example of NIAT calculation
Cherie runs a business and has had a total revenue last year of £52,000. Before she can determine her NIAT, she needs to first subtract the following:
- Cost of goods sold (COGS): £10,000
- Salary for employees: £10,000
- Depreciation of equipment: £6,000
- Tax: £9,100
The NIAT for Cherie’s company will be her total revenue minus the values for the above amounts: NIAT = £52,000 - £10,000 - £10,000 - £6,000 - £9,100
In this case, for the previous year, the NIAT for Cherie’s business is: £16,900. However, the amounts that will need to be subtracted to determine a company's NIAT vary widely depending on size, costs, industry, etc. so it's important that all relevant amounts are determine in order to be deducted.
Why NIAT is important
A business that is looking for their total profits for a selected period will need to calculate their net income after taxes. It is the same as a company’s net income, however, it provides a look at the income before and after tax.
NIAT is typically the final line found on a company’s income statement, so it is quite literally the bottom line. However, it is important to note that a company’s NIAT is not a total of the incoming cash to the business, as it takes into consideration expenses that are not cash based, such as depreciation and/or amortisation of assets.
To determine the cash entering and exiting a business, the statement of cash flows should provide these amounts.
However, NIAT is an important figure for businesses as it provides an indication of general profitability. As mentioned above, NIATs differ significantly across industries and business size. For example, a company with a negative NIAT is not necessarily doing poorly, it might instead be a new business or start-up that has not yet reached a break-even point.
NIAT is often used as a percentage to determine a company’s profit margin, a measurement that allows a business to determine how much of each pound/dollar/euro the company keeps in sales.
NIAT and Debitoor
Keeping track of your income & expenses and determining the NIAT of your business can be as fast as clicking on the ‘Reports’ tab of your accounting & invoicing software. Debitoor gives you the tools to record all incoming and outgoing amounts, which translates to instant generation of crucial financial reports such as the profit & loss (also known as the income statement), giving you fast access to the important numbers without the need for tedious calculations.