Net Income
Profit after all expenses.
Formula
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Example
The bottom line
How it works
Net income is the amount left over after you subtract all expenses from revenue. It shows whether a business made a profit or a loss over a period, because every cost of running the business reduces the money earned from sales. The formula works because income measures money coming in, while expenses measure money going out; the difference is what remains for the owner or company.
When to use it
Use this formula when you want to judge a business's profitability for a month, quarter, or year. It is also useful in personal finance or simple budgeting whenever you need to compare earnings against costs.
Worked example, step by step
Revenue = 12,500 Expenses = 9,200 NI = Revenue - Expenses NI = 12,500 - 9,200 NI = 3,300 Final answer: Net income is 3,300
Common mistakes to avoid
- subtracting revenue from expenses instead of expenses from revenue
- forgetting to include all expenses, such as rent, wages, or utilities
- mixing up net income with gross profit, which only subtracts direct production costs
Did You Know?
Net income is the famous "bottom line", literally the last figure on an income statement.
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Cost of Goods Sold
BasicThe direct cost of the inventory actually sold during a period.
Gross Profit
BasicWhat remains from sales after subtracting the direct cost of the goods sold, before operating expenses.
Net Income
BasicThe “bottom line” — total earnings after all expenses, interest and taxes are deducted from revenue.
Retained Earnings
BasicCumulative profit kept in the business rather than paid out to shareholders.
Current Ratio
IntermediateA liquidity measure of whether a firm can cover its short-term obligations with short-term assets.