Net Income

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, stock prices will increase.  

Net Income = Total Revenue – Total Expenses 

Example 

Total revenue – $100

  • Subtract cost of Goods Sold – $10

Gross Profit – $90

  • Subtract operating expense: rent, salary, utilities, depreciations, preferred stock dividends – $20
  • Subtract interest expense – $5
  • Subtract taxes – $5

NET INCOME – $60

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