What is Net Income?
Definition
Net income, also called the bottom line or net profit, is the total profit remaining after all expenses, taxes, interest, and costs have been deducted from revenue. It is the final line on the income statement and represents the profit available to common shareholders.
Detailed Explanation
Net income is calculated by starting with revenue and subtracting COGS, operating expenses, interest, and income taxes. It is the basis for earnings per share (EPS), the most widely followed metric in earnings reports.
Net income is used to calculate important ratios like net profit margin, return on equity, and return on assets. However, it can be influenced by non-cash charges, stock-based compensation, and one-time items.
GAAP net income and non-GAAP net income often differ substantially, especially for technology companies that exclude stock-based compensation. Investors should understand both numbers and the adjustments being made.
Companies with large gaps between GAAP and non-GAAP earnings warrant extra scrutiny.
Formula
Net Income = Revenue - COGS - Operating Expenses - Interest - Taxes
or
Net Income = Total Revenue - Total ExpensesExample
A company with $100B revenue, $60B COGS, $20B operating expenses, $3B interest, and $4B taxes has net income of $13 billion.
Frequently Asked Questions
What is the difference between GAAP and non-GAAP net income?
Can net income be negative?
Why do analysts look beyond net income?
Related Terms
Earnings Per Share (EPS)
Earnings Per Share (EPS) measures a company's net profit divided by its outstanding shares of common stock. It is one of the most widely used metrics for evaluating a company's profitability on a per-share basis and comparing performance across companies.
Revenue
Revenue, also called sales or top line, is the total amount of money a company earns from selling its products or services before any expenses are deducted. It is the first line item on the income statement and the starting point for profitability analysis.
Gross Margin
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It measures how efficiently a company produces its products or delivers its services and is a key indicator of pricing power and production efficiency.
Operating Income
Operating income, also called operating profit or EBIT, measures the profit a company earns from its core business operations after deducting operating expenses. It excludes income and expenses from non-operating activities like interest, taxes, and one-time items.
See It in Action
Disclaimer: The information on this page is provided for educational and informational purposes only and does not constitute investment advice. AI-generated analysis may contain errors or inaccuracies. Always conduct your own research and consult a qualified financial advisor before making investment decisions.
See Net Income in Action
StoxPulse AI automatically tracks and analyzes key financial metrics from earnings calls and SEC filings for your watchlist.