1. What Is Net Income?

Net income, also called net profit or net earnings, is a company's total earnings after subtracting all expenses from total revenue. It's a key measure of profitability and appears on the income statement.

2. How Net Income Is Calculated

The basic formula for calculating net income is:

Where:

• Total Revenue — All income generated from sales of goods/services
• Total Expenses — All costs incurred including COGS, operating expenses, taxes, interest, etc.

Explanation: This calculation shows what remains after all costs are deducted from all income, representing the company's profit.

3. Importance of Net Income

Details: Net income is crucial for assessing business profitability, determining tax obligations, attracting investors, and making strategic decisions about growth and operations.

4. Using the Calculator

Tips: Enter total revenue and total expenses in dollars. The calculator will compute net income by subtracting expenses from revenue.

5. Frequently Asked Questions (FAQ)

Q1: Is net income the same as cash flow?
A: No, net income is an accounting measure of profit, while cash flow tracks actual cash movements. They often differ due to accrual accounting.

Q2: What's a good net income margin?
A: Varies by industry, but generally 10-20% is considered healthy, though some industries operate with lower margins.

Q3: Can net income be negative?
A: Yes, when expenses exceed revenue, resulting in a net loss (negative net income).

Q4: How often should net income be calculated?
A: Typically calculated quarterly for reporting and annually for taxes, though businesses may track it monthly.

Q5: What's excluded from net income calculations?
A: Items like owner's draws (for sole proprietors), capital contributions, and loan principals are not expenses.