Definition

Net income is the amount a company makes after paying for costs, allowances, and taxes. It is what is left over after all expenses are covered, including salary, cost of goods sold, and taxes. For good financial health, a company must ensure that its net income is greater than its expenses.

Example

Net income or net earnings is calculated as net sales less cost of goods sold, general and administrative expenses, depreciation, operating expenses, interest, and taxes.

Why it matters

Companies use net income to further estimate their earnings per share. It is also referred to as the company's bottom line as it is presented at the bottom of the income statement. Net income can be seen on a company's income statement and indicates a company's profitability.

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