Net IncomeNI
Net income is what remains of revenue after all expenses, interest and taxes — the company's profit, or “bottom line”.
Net income is what is left from revenue once every cost, interest payment and tax has been paid. It is the profit figure behind earnings per share and many valuation ratios. Accounting and tax rules differ by country, so the same business can show different net income under different standards.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 3 min
- Also called
- Net profit, Net earnings, Bottom line
- Updated
Net income in plain words
Net income — also called net profit or net earnings — tells you how much the company actually made or lost over the period.1
It appears at the very bottom of the income statement, which is why it's called the “bottom line”.1
Many key ratios start here; return on equity, for example, is net income divided by shareholders' equity.2
How to get from revenue to net income
Start with revenue
Total sales for the period.
Subtract cost of sales
This gives gross profit.
Subtract operating expenses
Leaves operating income.
Subtract interest and tax
What's left at the end is the bottom line: net profit or loss.1
Divide by shares
Divide net income by shares outstanding to get earnings per share.1
Relate to equity
Divide net income by shareholders' equity to get return on equity.2
Worked examples
Example 1 — From top to bottom
ProfitA hypothetical company has revenue of 500, total costs of 400, interest of 20 and tax of 20 (millions).
| Revenue | 500 |
| After all costs, interest, tax | 60 |
The 60 is what the company actually earned during the accounting period.1
Example 2 — Per share
EPS 2.00The same hypothetical company has 30 million shares.
| Net income | 60m |
| EPS | 2.00 |
Net income divided by shares outstanding gives EPS.1
Example 3 — A loss year
Net lossA hypothetical company books a one-off write-down and costs exceed revenue by 15.
| Net income | −15m |
The bottom line can show the company’s net earnings or losses; here it is a loss.1
Net income vs operating income
| Aspect | Net income | Operating income |
|---|---|---|
| Includes interest | Yes | No |
| Includes tax | Yes | No |
| Includes one-offs | Usually | Often excluded in analysis |
| Used for | EPS, ROE, P/E | Core business performance |
Where net income is used
Valuation
Drives Earnings per Share and the Price-to-Earnings Ratio.
Dividends
The Payout Ratio compares dividends to net income.
Earnings season
Reported Earnings are compared with forecasts.
Profitability
Return on equity and margins start here.
Advantages and disadvantages
Advantages
- Single headline measure of profit.
- Comparable over time for one company.
- Basis for many ratios.
Disadvantages
- Affected by one-off items.
- Can differ sharply from cash flow.
- Depends on accounting choices.
- Tax and accounting rules differ by country.
Going deeper
Read as far as you need. Each level builds on the one before it.
The bottom line
Beginner
Net income is the final line of the income statement.1
From profit to per-share
Intermediate
EPS spreads net income across every outstanding share.1
Profitability ratios
Advanced
Return on equity — net income over shareholders' equity — is a key measure of profitability.2 Because net income includes one-offs, analysts often look at adjusted figures as well.
Common mistakes
Confusing revenue with profit
Revenue is the top line.
Ignoring one-off items
They can inflate or depress a year.
Assuming profit equals cash
Accruals and non-cash items differ.
Comparing across accounting regimes blindly
Rules differ by country.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Net income is profit after all costs, interest and tax.
- It is the income statement's bottom line.
- EPS divides it by shares outstanding.
- It can differ from cash flow.
- Accounting and tax rules differ by country.
Frequently asked questions
Is net income the same as earnings?
Can net income be negative?
Is net income calculated the same everywhere?
Further learning
- Earnings per Share
Net income per share.
- Price-to-Earnings Ratio
Valuing net income.
- Payout Ratio
How much is paid out.
- Earnings
Reported results in context.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- SEC. Beginners' Guide to Financial Statements (opens in a new tab) Checked .
- Charles Schwab. Five Key Financial Ratios for Stock Analysis (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.