Net income definition

Net income is the profit a company keeps after subtracting every expense from total revenue. It is also called the bottom line, because it sits at the foot of the income statement.

Net income takes revenue and deducts cost of goods sold, operating expenses, interest, taxes, depreciation, amortisation, and any non-operating gains or losses. A positive figure means the company made a profit for the period; a negative figure means it recorded a net loss.

Net income sits below two narrower profit measures. Operating income is profit from core operations before interest and tax; EBITDA strips out interest, tax, depreciation, and amortisation to show operating cash generation. Net income is the most complete measure, because it alone subtracts all of those items to reach the final accounting profit.

Net income Example

A company reports USD 500,000 in revenue for the year. It records four costs:

- Cost of goods sold: USD 180,000 - Operating expenses: USD 120,000 - Interest expense: USD 20,000 - Taxes: USD 30,000

Total expenses come to USD 350,000, so net income is:

USD 500,000 - USD 350,000 = USD 150,000

The company has USD 150,000 in net income, the bottom-line profit left after all costs and taxes.