What Is Net Income After Taxes?
Net income after taxes (NIAT) is an accounting term most often found in a company's annual report, and used to show the company's definitive "bottom line" for the accounting period. In other words, it shows what the company earned after all its expenses, charge-offs, depreciation, and taxes have been subtracted. This calculation is usually shown as both a total dollar amount and a per-share calculation.
Understanding Net Income After Taxes (NIAT)
Net income after taxes (NIAT) is simply the net income of a business less all taxes. It is the sum of all revenues minus all expenses, including cost of goods sold, depreciation, interest, and taxes. While it is the same as net income, for the most part, it is used in financial statements to differentiate between income before tax and income after tax. Since it is the last line on a company’s income statement, NIAT is also referred to as the bottom line.
NIAT is one of the most analyzed figures on a company’s financial statement. The amount recorded provides an indication of the profitability of a company which determines whether the firm can compensate its investors and shareholders. An increase in profits over multiple periods typically leads to an increase in the business’ stock price. A company with a net income that is negative or below average may be a start-up firm, an aggressively growing firm, or a firm experiencing a decline in sales or poor expense management.
To better compare companies or industries using NIAT, it is more effective to use the figure as a percentage of another. For example, the profit margin is NIAT as a percentage of total sales of a company. The profit margin measures how much out of every dollar of sales a company keeps in earnings. A 20% profit margin, for example, means that for each dollar of sales generated, a company keeps $0.20 in profits. The commonly used price-earnings (P/E) ratio also uses the net income number to determine how much investors are paying for each dollar of profit the company can generate.
Net income after taxes is not the total cash earned by a company over a given period, since non-cash expenses, such as depreciation and amortization are subtracted from revenue to get the NIAT. Instead, the cash flow statement is the reference to how much cash a company generates over a period.
While the net income after taxes calculation is one of the most solid measures of a company's performance, numerous accounting scandals in recent years have proven it to be less than 100% reliable. Investors evaluating a company's bottom line need to assess it for legitimate and future expenses that accounting rules permit a company to exclude from their current NIAT calculation.