[net ˈɪnkʌm]
Net income is a company's total earnings after deducting all of its expenses, taxes, interest, and other costs from its total revenue.
What is Net Income (NI)?
Net income refers to the profit that a company has made over a specific period, such as a quarter or a year, after subtracting all expenses, taxes, interest, and other related costs from its total revenue. It is an essential measure of a company's financial health and is widely used by investors and analysts to evaluate its profitability.
The net income is also known as the bottom line, as it appears at the end of a company's income statement, summarizing its revenues and expenses. A positive NI indicates that a company is profitable, while a negative NI indicates losses.
Key Takeaways
- Net income indicates how much profit a company has made after all of its expenses have been deducted from its revenue. A positive NI indicates that a company is profitable, while a negative NI means it is operating at a loss.
- Net income is a widely used financial metric that provides investors and analysts with insight into a company's financial health. It is reported on a company's income statement and is often used to assess a company's ability to generate cash flows and pay dividends.
- A company'sNI can be impacted by a variety of factors, such as changes in revenue, expenses, taxes, interest rates, and other costs. It can also be influenced by external factors such as economic conditions and competition.
Example
A fictional company, XYZ Inc., reported revenue of $500,000 for the year. During the same period, it incurred expenses such as salaries, rent, and utilities totaling $300,000. It also paid $50,000 in taxes and $20,000 in interest on its debt.
To calculate the NI of XYZ Inc., we subtract all of its expenses, taxes, and interest from its revenue:
Net Income = Revenue – Expenses – Taxes – Interest
Net Income = $500,000 – $300,000 – $50,000 – $20,000 = $130,000
So in this case, XYZ Inc. has a NI of $130,000 for the year. This means that after deducting all of its expenses, taxes, and interest from its revenue, the company has made a profit of $130,000.
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