Net Income

by Investing School on December 14, 2009

In business, you have the company’s total earnings or revenue. Net income is a term that refers to the income that you receive after you subtract all of the costs and expenses related to your business from your total revenue. Some of the related costs can be overhead, depreciation, interest, taxes and other expenses that are related to running the business. Net income is found on a company’s financial statement and it is a critical measure of how healthy and profitable that company is over a certain length of time.

Net income is also referred sometimes as “the bottom line”. This attribute came from the fact that the net income number was listed on the bottom line of the company’s financial statements.

If you are doing business in the UK, net income is referred to as “profit attributable to shareholders”.

Another way to explain it is this. You take a company’s total monies coming in or revenue. From this number, you subtract the cost of sales, all other company expenses and you then have the number that is your earnings before taxes. Once taxes are deducted from this amount then you have reached your net income number.

Net income is easy to manipulate for a number of reasons. If someone exaggerates revenue or hides expenses then this can tamper with the final total net income. If an investor is seriously looking at a company, the investor will want to take a good hard look at the validity of all the numbers associated.

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