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Net Income: Definition and Meaning
Definition
Net income is the amount remaining after all expenses, losses, and taxes are deducted from revenue and gains for a period.
Why It Matters
Net income is a key measure of profitability, but it should be considered alongside cash flow, working capital, debt obligations, capital expenditures, and the quality of earnings. A profitable business can still experience liquidity pressure, especially during growth or when collections are delayed.
Comparing net income with prior periods, budget, and revenue can help management assess performance and identify trends.
Example
A company has $500,000 in revenue and $430,000 in total expenses, losses, and taxes. Its net income is $70,000.
Related Terms
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