Net income is the bottom line, net profit or net earnings.
Net income is the main source of compensation to shareholders through dividends and share buybacks.
- If a company does not generate enough profits to compensate owners, the value of shares will drop.
- If a company is profitable and growing, prices
Net Income = Total– Total Expenses
Total revenue – $100
- Subtract cost of Goods Sold – $10
Gross Profit – $90
- Subtract operating expense: rent, salary, utilities, depreciations, preferred – $20 dividends
- Subtract interest expense – $5
- Subtract taxes – $5
NET INCOME – $60