Net income is the wealth created by a business. Also known as the bottom line, it is a key indicator of a company’s profitability. It is calculated by deducting all operating expenses and costs from the total income.
Net income has long been used in financial analysis. Today, financial analysts no longer use it as much, as they question its reliability. In fact, it is a somewhat catchall global measure that takes into account unusual extraordinary items. For example, an automaker facing a loss from declining sales may post a positive net income from the sale of one or more of its factories.
Net income is the basis of calculation for many financial ratios such as the price/earnings ratio or the earnings per share ratio, which proves to be very effective in assessing a company’s performance.
Synonyms: Net profit, Net profit for the financial year, Profit, Net Income
Financial statements summarize a company’s performance and financial position over a given period. There are three main financial statements: the balance sheet, the income statement and the cash flow statement. Read more