Net Income - NI

AAA

DEFINITION of 'Net Income - NI'

1. A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. The measure is also used to calculate earnings per share.

Often referred to as "the bottom line" since net income is listed at the bottom of the income statement. In the U.K., net income is known as "profit attributable to shareholders".

2. An individual's income after deductions, credits and taxes are factored into gross income. Deductions and credits are subtracted from gross income to arrive at taxable income, which is used to calculate income tax. Net income is income tax subtracted from taxable income.

INVESTOPEDIA EXPLAINS 'Net Income - NI'

1. Net income is calculated by starting with a company's total revenue. From this, the cost of sales, along with any other expenses that the company incurred during the period, is removed to reach earnings before tax. Tax is deducted from this amount to reach the net income number. Net income, like other accounting measures, is susceptible to manipulation through such things as aggressive revenue recognition or by hiding expenses. When basing an investment decision on net income numbers, it is important to review the quality of the numbers that were used to arrive at this value.

2. For example, suppose that your gross income is $50,000 and you have $20,000 in deductions and credits. This leaves you with a taxable income of $30,000. Then, suppose that another $5,000 of income tax is subtracted; the remaining $25,000 will be your net income.

VIDEO

Loading the player...
RELATED TERMS
  1. Net Operating Income - NOI

    A company's operating income after operating expenses are deducted, ...
  2. Income

    Money that an individual or business receives in exchange for ...
  3. Net Of Tax

    An accounting figure that has been adjusted for the effects of ...
  4. Core Earnings

    The revenue derived from a company's main or principal business, ...
  5. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
RELATED FAQS
  1. What developed countries have the greatest exposure to the Internet sector?

    The Internet sector permeates all developed economies. The McKinsey Global Institute estimates that Internet companies constitute ... Read Full Answer >>
  2. What will examining a company's cash flow from operating activities tell an investor?

    When examining a company's cash flow from operating activities on its cash flow statement, an investor is able to understand ... Read Full Answer >>
  3. What are the key economic indicators that are used to calculate gross national income ...

    The key economic indicators used to calculate gross national income (GNI) are gross domestic product (GDP) net compensation ... Read Full Answer >>
  4. What are the tax benefits of establishing a sinking fund?

    The primary tax benefit available through the creation of a sinking fund is a deduction for interest payments made. The other ... Read Full Answer >>
  5. What can cause the marginal propensity to consume to change over time?

    An investor uses the dividend yield and dividend payout ratio to evaluate whether he should invest in a company based on ... Read Full Answer >>
  6. How is market to market accounting different than historical cost accounting?

    Historical cost accounting and mark-to-market, or fair value, accounting are two methods used to record the price or value ... Read Full Answer >>
  7. What is the difference between net income and cash flow from operating activities?

    Net income is a line item in the operating activities section of the cash flow statement. Net cash flow from operating activities ... Read Full Answer >>
  8. What is the direct method of calculating cash flow from operating activities?

    The direct method of calculating cash flow from operating activities adds up all the cash receipts and cash payments of a ... Read Full Answer >>
  9. What's the difference between economic value added (EVA) and accounting profit?

    Economic value added (EVA) is a measure of a company's economic profit, which is the profit earned by a company minus the ... Read Full Answer >>
  10. What is the difference between an expense and a liability?

    A liability is a company's obligation or debt, such as money that must be paid, goods that must be delivered or services ... Read Full Answer >>
  11. What main factors affect share prices in the metals and mining sector?

    The primary factors that influence share prices of companies in the metals and mining sector are commodity market prices, ... Read Full Answer >>
  12. What is the average growth rate of the oil & gas drilling sector?

    The exploration and drilling sector of the oil and gas industry has seen historically solid growth rates, with companies ... Read Full Answer >>
  13. What is the average growth rate of the forest products sector?

    The forest products sector is responsible for a wide variety of paper and timber products manufactured and sold worldwide, ... Read Full Answer >>
  14. What is the best way to calculate profitability for startups?

    For companies at every stage of development, accurately measuring profitability is crucial to the creation of effective business ... Read Full Answer >>
  15. What is the difference between dividend yield and dividend payout ratio?

    The dividend yield and dividend payout ratio are two valuation ratios investors and analysts use to evaluate companies as ... Read Full Answer >>
  16. What is being adjusted in "adjusted net income"?

    Generally, metrics that reflect profitability at various stages are used to assess the relative financial strength of a company. ... Read Full Answer >>
  17. How are effective tax rates calculated from income statements?

    Income statements offer a quick overview of the financial performance of a given company over a specified period of time, ... Read Full Answer >>
  18. What happens if a company doesn't think it will collect on some of its receivables?

    The accounts receivable account, or receivables for short, is created when a company extends credit to a customer based on ... Read Full Answer >>
Related Articles
  1. Stock Analysis

    Why Zynga Might Be the Most Undervalued Stock of 2015

    Learn why Zynga, despite having fallen off most investors' radar, might be the most undervalued stock for 2015 and a winning pick for value investors.
  2. Stock Analysis

    Who's The Stronger Stock: Amazon or eBay?

    Learn how revenue, profitability, valuation metrics, active user base and seller ratings measure the success of Amazon and eBay.
  3. Fundamental Analysis

    The Top 3 Reasons Southwest's Stock Is a 'Buy'

    Discover the key differences between Southwest Airlines and other major U.S. airlines that have made Southwest a major business success.
  4. Investing Basics

    What Happened To Rite Aid Stock In 1999?

    Learn how software glitches, competition from the dot-com craze and a major accounting scandal caused Rite Aid's stock to plummet between 1999 and 2001.
  5. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  6. Insurance

    Everything Investors Need To Know About Earnings

    We go over the concepts behind the excitement over the most important figure in the stock market.
  7. Markets

    Cleaning Up Dirty Surplus Items On The Income Statement

    Dirty surplus items can skew net income. Knowing how to account for them will give you a cleaner picture.
  8. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  9. Fundamental Analysis

    Accretion / Dilution Analysis: A Merger Mystery

    This analysis tool is an effective way to value mergers and acquisitions. The deal's on the table, but should you sign the papers?
  10. Retirement

    Too Much Debt For A Mortgage?

    Just because a lender is willing to offer you a loan doesn't mean you should take it.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!