How to calculate benefits after financial costs
The companies raise money to pay day-to-day operations and support the expansion plans of the companies. Financing options include borrowing money from financial institutions, deferring payments to suppliers, issuing long-term debt and issuing shares. The cost of interest, administrative expenses and related expenses are known as financial expenses that are subtracted from operating income to obtain the benefit after financial expenses. The operating result is the gross profit less selling and administrative expenses. The gross profit is the sale minus the cost of the goods sold.
Obtain the cost of interest for the period, which can be a month, a quarter or a year. If the credit operation line has been used or a business loan is drawn, calculate the total accumulated interest for the period. For example, the annual interest expense on a € 10, 000 loan at a simple 5 percent interest rate is € 500 (€ 10, 000 x 0.05). During a three-month period (known as a quarter) accrued interest expense is € 125 (€ 500/4).
Calculate the financing rates, such as administration expenses and shipping fees. For long-term debt, financing rates are amortized over the term of the loan. For example, if you pay € 1, 000 in costs of issuing a debt for a five-year bond, you can not account for the full amount in the first year. Expenses of one fifth of the costs, or € 200, in each year during the five-year bail period. Keep in mind that the costs of issuing shares are usually subtracted from income. For example, if a company issues 1, 000 euros in shares and pays a commission of 5 percent of the subscribers, the record amount of € 950 [€ 1, 000 - (1, 00 - 0, 05)] is reached in your book, as net proceeds of the issuance of shares.
Determine financial expenses by adding interest expenses and financing fees for the period. Obtain the amount of exploitation of the account.
Calculate the result after financial expenses. Subtract financing expenses from operating income for the period. For example, if the operating profit is € 1, 000 and the financing costs are $ 250, then the result after financial expenses is € 750 (€ 1, 000 - € 250).Tips
- The fall in interest rates has a favorable impact on the profits of a company, since it decreases the interest expense component of financial expenses. Companies can take advantage of lower rates to refinance their outstanding debt. This reduces financing costs and therefore improves profits.