Net interest revenue (NIR) is a measure used by businesses to show how much money is being gained or lost on interest payments, and two factors are needed to calculate this. These are the interest paid by assets, which is money businesses are gaining from customers and assets, and what businesses pay on liabilities, or money they are paying to customers and other entities. Businesses usually strive for a positive NIR, because this shows they are making more money on assets that they are paying out. While banks commonly use this calculation, because they tend to pay out more than other businesses and focus primarily on interest rates, other businesses also can use it.
One factor needed to calculate net interest revenue is the interest being paid by assets. This describes all the money a business is taking in from interest payments, such as those made on loans or credit cards. For example, if a business is gaining $20 US Dollars (USD) from a loan and $35 USD from a credit card, then its monthly interest paid by assets is $55 USD.
The second factor needed to calculate net interest revenue is the interest the business pays to liabilities. A bank pays interest rates to customers for depositing money, and these figures must be added. To calculate the NIR, the positive interest is subtracted from the negative interest. For example, if the positive interest is the $55 USD mentioned above and the negative is $40 USD, then the business has an NIR of $15 USD.
Most businesses strive to attain positive net interest revenue, because this shows they are gaining more money from interest-rate-based payments than they are losing. Negative NIR can be a bad sign, especially if it is a large number, because this means businesses are paying a lot of money and may be unable to recover from the losses. To get better NIR, businesses can cut programs through which they pay customers, they can reduce interest paid to liabilities, or they can get more positive assets.
This formula can be used by nearly any business that gains and pays money for interest-rate-based assets and liabilities, but banks most commonly use this. Banks lose and gain money primarily from interest rates in their daily dealings, so this is a natural way for banks to figure out if they are gaining or losing funds. Other businesses use factors such as how much they have to pay investors and how much they gain from investments in other companies or projects.