Net income
Net Income
Net income (pronounced: net in·come | \ ˈnet ˈin-kəm \) is a term used in accounting and finance to represent the amount of profit that a company has earned after all expenses and taxes have been deducted from the total revenue. It is also known as the bottom line or net earnings.
Etymology
The term "net income" originates from the Latin word "nitere", which means "to shine". In the context of finance, it refers to the "shining" or outstanding amount that remains after all deductions have been made.
Calculation
Net income is calculated by subtracting total expenses, including taxes and cost of goods sold (COGS), from total revenue. The formula is as follows:
Net Income = Total Revenue - Total Expenses
Related Terms
- Gross income: This is the total income earned by a business before any deductions are made. It is often confused with net income, but the two are different as gross income does not take into account expenses or taxes.
- Operating income: This is a measure of a company's profitability from its core business operations, excluding deductions of interest and taxes.
- Net profit margin: This is a profitability ratio calculated as net income divided by revenue. It shows how much profit a company makes for every dollar it generates in revenue.
- Income statement: This is a financial statement that shows how a company's revenue is transformed into net income. It displays both the total revenue and the total expenses over a specific period of time.
External links
- Medical encyclopedia article on Net income
- Wikipedia's article - Net income
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