What does net income mean?
Net income is your company’s total profits after deducting all costs of operation.
Costs of operations include business expenses such as inventory, insurance, salary payouts, leased or financed space, equipment costs, advertising, miscellaneous expenses—anything that you’ve paid in service of your business.
Also included in the costs of operating a business are depreciation, loss on investments, and taxes.
How to define net income?
The simple net income definition is your company’s net profits or net earnings.
Commonly used to determine the profitability of individual sections or a business as a whole, factoring net income is an important evaluative measure for any business.
How to calculate net profit?
How to calculate net profit or operating income:
Net Profit = Total Revenue – (Expenses including overheads + Tax)
Net income or net profit?
Net income and net profit are often substituted for each other.
However, the meaning differs slightly in that net income is the final calculation of the total remaining income of the business in a certain period, after all deductions including equity held during the specific timeframe.
Net profit relates to only the profit and doesn’t consider certain types of equity, like those held by shareholders. So, when performing financial calculations, make sure you are using the right net figures.
Both net income and net profit can be in minus figures, which shows that you are making a loss. They are important indicators to you and your stakeholders of the financial health of your business.
