Net Income

Profit after all expenses, taxes, and interest are subtracted from revenue.

Net income is the total amount of money a company has left over after subtracting all of its business expenses, taxes, interest payments, and depreciation from its total revenue. Often referred to as the bottom line because it appears at the very bottom of the income statement, net income represents the ultimate profitability of a business over a specific period, such as a quarter or a fiscal year. To calculate net income, a company starts with its gross revenue (sales) and subtracts the cost of goods sold to find gross profit. From there, it deducts operating expenses, depreciation, amortization, interest paid on debt, tax expenses, and any one-time charges or write-offs. Conversely, any non-operating income, such as interest earned on cash reserves or one-time gains from asset sales, is added back. Investors closely monitor net income because it is the pool of capital from which dividends are paid, shares are repurchased, or funds are reinvested back into the business to fuel future growth. It is also the primary input used to calculate earnings per share (EPS) and price-to-earnings (P/E) ratios. However, investors must be cautious: net income is an accounting metric that can be heavily influenced by non-cash items and one-time events, meaning a company can report positive net income while actually losing cash, or vice versa.

Company A generates $1,000,000 in total revenue. It spends $400,000 on the cost of goods sold (COGS), $300,000 on operating expenses (OPEX), $50,000 in interest on its debts, and $70,000 in corporate taxes. Its net income is calculated as: $1,000,000 (Revenue) - $400,000 (COGS) - $300,000 (OPEX) - $50,000 (Interest) - $70,000 (Taxes) = $180,000.