đź‘ľ Game Master
6/17/2022, 5:01:49 AM
Net Income
Key Definition
Net income (abbreviation: NI) is an indicator of a company's profitability. It occurs on the income statement. For investors and business operators, it shows how much revenue is left after subtracting from all the expenses. It is the most popularly used measurement for companies’ profitability as it calculates the “absolute profit”, which means the final profit after subtracting all the costs that appeared during the business operation. This is the reason why net income is also called the bottom line by many financial analysts.
Interchangeable Terms
Net Profit
Bottom-line
Net earnings
Calculation
Net Income = Revenue - COGS - SG&A (Operating Expenses) - Tax - Interests - Other Expenses
Application
Net Profit Margin
Net profit margin is the percentage of net profit in total revenue. The calculation is:
Net Profit Margin = Net Income Ă· Revenue * 100%
Profit margin helps the analyst to determine if the company's operation is efficient to generate enough profit from sales.
It is worth noticing that the net profit margin is a relative-valuation metric, which means it only plays its role when we compared the result with other similar companies’ net profit margins. The result alone will not tell much about the company’s profitability.