What is Net Income?

    36K viewsJun 17, 2025
    What is Net Income? -1

    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.

    Understanding

    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.

    Calculation

    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 larger deduction from Company B's revenues, leading to lower overall profitability.

    Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy.

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