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        What is Net Income?

        Views 15k2023.10.10

        Key Takeaways

        ● Net income is the value of a company's total revenues minus total expenses.

        ● Companies can use their net income to reinvest or repay debts.

        ●Net income is an indicator of a company's profitability.


        Net income, also called net earnings, is a crucial metric for gauging a company's or individual's profitability.

        Net income is the amount of a company's total revenues minus total expenses.


        The net income for a business is calculated as total revenues minus expenses of raw materials, employee salaries, selling, interest, taxes, and others.

        A company can use its net income to reinvest, repay debts or pay shareholders as dividends.

        What It Means

        Net income takes all the revenues and expenses of a company into account, including taxes. Therefore, net income is one of the most important indicators of a company's profitability.

        Net income helps investors understand a company's business performance.

        The proportion of costs in revenues can reflect a company's ability to combat risks.

        For example, Company A has total revenues of $1 million and expenses of $900,000 annually. Thus, its net income is $100,000.

        Company B has total revenues of $10 million and costs of $9.8 million per year, and its net income is calculated as $200,000.

        Although Company B's net income is higher than Company A's, Company B is less profitable than Company A because higher costs result in a large deduction from Company B's revenues.

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