What is net income?
In one line: Net income is a company's profit after every cost, interest payment and tax is taken out of its revenue for a period.
A simple example
Net income starts with Revenue and subtracts everything. Here's an illustration for one year:
| Line | Amount |
|---|---|
| Revenue | $1,000 million |
| − Cost of what was sold | $600 million |
| − Running costs (staff, rent, marketing) | $250 million |
| − Interest on debt | $30 million |
| − Taxes | $25 million |
| = Net income | $95 million |
It's called the "bottom line" because it's the last line of the income statement.
How it links to EPS
Divide net income by the number of shares and you get Earnings per share (EPS).
Say the company has 50 million shares. EPS = $95M ÷ 50M = $1.90.
EPS is what feeds the P/E ratio. If the stock trades at $38, P/E = $38 ÷ $1.90 = 20.
Why it matters
Net income shows whether the business is profitable after everything. A company can grow revenue fast and still have negative net income if costs grow faster.
In an Earnings report, markets watch EPS (net income per share) against what analysts expected.
A common mistake
Treating net income as cash. Net income follows accounting rules. It includes non-cash items like depreciation, and it can be lifted by one-time gains, like selling a building. A company can show a profit while cash goes out the door.
That's why many investors also check Free cash flow, which tracks the actual cash.
Watch for "adjusted" profit numbers. Companies often report their own version that leaves out some costs. The official net income figure follows standard accounting rules (GAAP in the US).
Questions
Is net income the same as profit?
Yes, net income is the full profit after all costs. You'll also hear "earnings" or "net profit."
Can net income be negative?
Yes. That's a net loss. It means costs were bigger than revenue for the period.
What's the difference between gross profit and net income?
Gross profit is revenue minus only the cost of what was sold. Net income also takes out running costs, interest and taxes.
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