Net income is a company’s profit in a given fiscal period. It consists of total revenues earned in the period less total expenses incurred to generate the revenues in the period. When revenues exceed expenses, the company has a net profit. When expenses exceed revenues, the company has a net loss. Net income is reported on a company’s income statement. It is an important measure of a company’s profitability and financial performance for the relevant fiscal period. Net income is also called net earnings, net profit, or the bottom line.
Basically, net income is computed by subtracting all relevant costs and expenses from total revenue. Start with total revenue, also known as the top line because it is shown at the top of the income statement, and subtract the costs of sales, operating expenses, non-operating expenses, and taxes. This gives you net income, also known as the bottom line because it is shown at the bottom of the income statement.
Net Income = Revenues – Cost of Sales – Operating Expenses – Non-Operating Expenses – Taxes