Net income is an important metric for investors to calculate a company’s earnings per share.
Net income is the total amount of income left after expenses and deductions are taken out.
You can find a company’s net income on their income statement, which you may be able to find via the SEC’s EDGAR Tool to assess the health of a business.
Net income is also used to calculate earnings per share for investors.
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One of the most important metrics for businesses and investors to track is net income (NI). This is also sometimes referred to as net profit, net earnings, or – more colloquially – ‘the bottom line,’ which refers to the profits left over after total expenses have been deducted.
What is net income (NI)?
Net income is a key metric for assessing the health of a business and signifies the profit a company earns after the total of all deductions and expenses are subtracted from total revenue. Revenue includes all money earned by a company, and is also referred to as gross income.
Net income is one part of what you’ll see on a company’s income statement. It’s located on the bottom line of the income statement, which is why you’ll sometimes hear the term ‘bottom line’ being used in lieu of ‘net income.’
“Net income is the last line on a company’s income statement and is the amount of operating profit businesses report after deducting cost of goods, operating expenses, and other allowable expenses,” says Gabi Slemer, a Chartered Financial Analyst and founder of Finasana, a financial literacy and wellness platform.
Why net income is an important metric
When you look only at revenue, you’re not looking at the big picture costs of running a business or its profitability. Similar to how you can’t just look at your individual income to assess your personal financial wellbeing (looking at net worth is a better indicator). It’s key to look at all expenses and get a clear idea of what money is coming in and what is going out.
Net income can give you an overall idea of the health of a business, because it shows profits after all deductions are taken out. If there are major differences between gross and net income, it can be a warning sign. It could mean that expenses are too high, income is too low, or both.
It’s important to note that net income is just one metric to look at and it can vary from business to business.
“[Net income numbers] can change drastically from one business to another based on how they choose to fund their companies and assets. Net income also doesn’t include capital expenditures. A given business could have a pretty high net income relative to their earnings but in reality be hemorrhaging cash. If a company has really expensive debt their net income could be lower than their counterpart who is actually less profitable but has less debt,” explains …read more
Source:: Business Insider