DEFINITION of net income NI
Net income NI is an income minus cost of goods sold, expenses and taxes for an accounting period.
WHAT IT IS IN ESSENCE
It is computing as the residual of all revenues and gains over all expenses and losses for the period. And it defining as the net increase in shareholders’ equity that results from a company’s operations.
Also, in the context of the presentation of financial statements, net income is synonymous with profit and loss.
NI is the bottom line and is the basis for several key indicators, including earnings per share.
As the total figure, net income is key to assessing a company’s profitability over a certain period.
To calculate net income, a company would remove all costs and expenses incurred from its total revenue.
Also, any money paid in tax, with the result being the net income for the period.
Moreover, the entrepreneur can use the net income to pay shareholders a dividend or to reinvest back into the business.
HOW TO USE
Net income is the profit your business earns after expenses and allowable deductions.
To calculate net income, take your gross income and subtract all of your business expenses.
Include marketing or advertising costs, travel or office expenses, tax payments, etc.
As well as any deductions you may be eligible for such as a home office space, retirement plan, or legal and professional fees.
Net income is one of the most closely followed numbers in finance.
And it plays a large role in ratio analysis and financial statement analysis. Shareholders look at net income closely because it is the main source of compensation to shareholders of the company.
If a company cannot generate enough profit to adequately compensate owners, the value of shares will plummet.
Conversely, if a company is healthy and growing, higher stock prices will reflect the increased availability of profits.
Net income can also help you understand the health of your business.