Net Income
$$\text{Net Income} = \text{Revenue} - \text{COGS} - \text{OpEx} - \text{Interest} - \text{Tax}$$
What is Net Income?
Net Income (also called Net Profit, Net Earnings, or "the bottom line") is a company's profit after deducting every cost: COGS, operating expenses (SG&A, R&D), interest expense, and income tax. It is the final line of the income statement and represents what is left for shareholders after all obligations are met.
Net Income flows into the balance sheet through Retained Earnings (if not distributed as dividends). For public companies, Net Income divided by shares outstanding gives Earnings Per Share (EPS) — the most widely followed profitability metric in equity markets.
Net Income can be positive (profitable) or negative (a net loss). Sustained negative Net Income requires external financing (new debt or equity) to fund ongoing operations. Growth companies often run at a net loss deliberately, investing in future revenue at the expense of near-term profitability.
When to use Net Income
Use Net Income to calculate Net Profit Margin, EPS, and return on equity (ROE). It is the most comprehensive measure of what shareholders actually earn from the business. For operational comparisons (stripping out financing and tax), use EBIT or EBITDA instead.
Worked examples
| Income statement item | Amount |
|---|---|
| Revenue | $10,000,000 |
| − COGS | $4,000,000 |
| = Gross Profit | $6,000,000 |
| − Operating Expenses | $3,500,000 |
| = EBIT | $2,500,000 |
| − Interest Expense | $300,000 |
| = EBT | $2,200,000 |
| − Tax (25%) | $550,000 |
| = Net Income | $1,650,000 |
Common pitfalls
Net Income is the most susceptible earnings metric to accounting manipulation — through revenue recognition timing, expense deferral, and impairment reversals. It also includes non-cash items (depreciation, amortisation) that do not represent cash outflows. Always cross-check Net Income against operating cash flow from the cash flow statement.
Frequently asked questions
Is Net Income the same as profit?
Net Income is the most complete measure of profit — it deducts all costs. But "profit" can refer to Gross Profit, Operating Profit, or Net Income depending on context. In everyday business usage, "profit" usually means Net Income (bottom-line profit).
Can a company have high revenue but negative Net Income?
Yes, this is common in growth-stage companies that invest heavily in sales, marketing, and R&D. Revenue growth does not guarantee profitability. Amazon ran at or near breakeven net income for many years while growing revenue rapidly.
What happens to Net Income if it is not paid as a dividend?
It is retained in the business and added to Retained Earnings on the balance sheet. Retained Earnings accumulate over time and fund reinvestment in the business, debt repayment, or share buybacks.