Question

In \(2009,\) Verizon Communications earned 97.354 dollar million in revenue and had 90,926 dollar million in total expenses. What was the net? Was it a profit or loss? (Source: Fortune \(500,2009\) )

Short answer

Answer: In 2009, Verizon Communications had a profit of 6,428 million dollars.

Step-by-step solution

Write down the total revenue and total expenses

The total revenue earned by Verizon Communications in 2009 was 97,354 million dollars, and the total expenses were 90,926 million dollars.

Calculate the net

To find the net, subtract the total expenses from the total revenue: Net = Total revenue - Total expenses Net = 97,354 - 90,926

Determine if it is a profit or loss

If the net is a positive number, it is a profit. If the net is a negative number, it is a loss. Calculate the value of the net: Net = 97,354 - 90,926 = 6,428

Interpret the result

The net for Verizon Communications in 2009 was 6,428 million dollars. Since this is a positive number, Verizon Communications had a profit in 2009.

Key concepts

Revenue and Expenses

Understanding revenue and expenses is crucial for any business or individual to grasp their financial performance. Revenue represents the total amount of money brought in from sales of goods or services, while expenses are all the costs incurred in the process of generating that revenue. These expenses could include salaries, operations costs, raw materials, and more. For instance, in the 2009 case of Verizon Communications, they garnered a massive \(97,354 million in revenue.

To truly evaluate financial health, one must subtract the total expenses from the total revenue. Verizon had expenses amounting to \)90,926 million. The essential arithmetic here is straightforward: Revenue minus Expenses, which yields what is known as the net result. This concept is pivotal in deciphering whether an entity is profitable.

Net Income

Moving on to net income, this term is defined as the profit a company makes after subtracting all its expenses from its total revenue. It’s a clear indicator of financial success. Positive net income means a company is earning more than it spends, which is a sign of profitability. Conversely, negative net income indicates financial loss.

In the exercise regarding Verizon Communications, the net income calculation was performed by subtracting the total expenses from the total revenue, resulting in a net income of $6,428 million. This net income, being a positive figure, clearly categorizes the year 2009 as a profitable one for the company. Understanding net income is instrumental for stakeholders to assess a company's profitability and make informed decisions.

Basic Arithmetic

The foundation of such financial evaluations lies in basic arithmetic, a tool that, despite its simplicity, is profoundly important in the world of finance. It involves the use of addition, subtraction, multiplication, and division to calculate critical metrics like revenue, expenses, and net income.

In our Verizon Communications example, simple subtraction is used to determine the net income, which is also the basic arithmetic operation needed to ascertain whether a business is in a state of profit or loss. It’s essential for anyone, not just finance professionals, to be confident with these calculations as they form the basis of budgeting and financial planning in both personal and business scenarios.