In business and accounting, Net Income is a company’s total income minus the cost of goods sold, depreciation, interest expenses, taxes, and other expenses.
Net Income is also called Net Earnings and Net Profit.
Net income is one of the important factors in the business, it lets the company know whether they have gained money, lost, or how much they have profited after subtracting all the expenses from sales.
If the net income has a net negative value, it means the company will face a loss in selling goods and managing taxes.
If the net income is a positive value, it means the company has profited and it will also let them know the percentage of profit the company earned in sales.
Net Income vs Cashflow
when experts value a company, they will consider cash flow as the important metric when compared to net income.
this is because Net income is been calculated by using a variety of non-cash expenses like depreciation, amortization, and stock-based compensation.
Net Income vs Gross Income
Gross income is the amount a person earns as salary, compensations, and Net Income is the amount that is left after paying taxes and deductions.
Formula for calculating Net Income
Net Income = Revenue – Cost of Goods Sold – Expenses
Example of Net Income
A company earned $250,000 in sales but has expenses like $100,00 for making the product, $50,000 for marketing, and $50,000 for other expenses and operational costs.
Now net income for the company is $250,000 – $100,00 – $50,000 – $50,000 = $50,000.
Net Income is an important factor to calculate and assess the net worth of an individual or a company.