What Is Net Income?
Net income is a company's total profit after all expenses, costs, interest, and taxes are subtracted from revenue. Known as the "bottom line," it's the final figure on the income statement and the clearest single measure of profitability.
What net income is and why it matters
Net income is what remains after everything is accounted for — cost of goods sold, operating expenses, interest, and taxes all come out of revenue to leave it. It flows into retained earnings on the balance sheet, increasing equity when positive, and it's the basis for earnings-per-share and many profitability ratios. Because it captures the full cost of doing business, net income is the headline profit figure investors and owners watch. But it can be distorted by one-time items or non-cash charges, so it's read alongside cash flow rather than in isolation.
A worked example
A company reports revenue of $1,000,000. It subtracts COGS of $600,000 (gross profit $400,000), operating expenses of $250,000 (operating income $150,000), interest of $20,000, and taxes of $30,000. Net income = $150,000 − $20,000 − $30,000 = $100,000. That $100,000 is the bottom line, and if the company pays $40,000 in dividends, $60,000 flows to retained earnings.
How firms handle it today
Firms arrive at net income by producing an accurate income statement at close — every revenue and expense recognized in the right period and reconciled — since net income is only as reliable as the figures above it.
Related terms
- Income statement
- Revenue
- Retained earnings
- Net income
- EBITDA
FAQ
What's the difference between net income and revenue?
Revenue is total sales before costs; net income is what's left after all expenses, interest, and taxes are subtracted.
Is net income the same as profit?
Net income is the most complete measure of profit — the bottom line — after all costs are accounted for.
Where does net income go?
It flows to retained earnings on the balance sheet, increasing equity (less any dividends paid).