What Is Net Income?
Net income is a company's total profit after deducting all expenses: cost of goods sold, operating expenses, interest, taxes, and other items. It appears at the bottom of the income statement—often called the "bottom line." Net income represents the profit attributable to shareholders (or owners) for the period.
Investors use net income to calculate EPS, ROE, and profit margins. It is the starting point for dividends and retained earnings. Positive net income indicates profitability; negative net income (a net loss) means the company spent more than it earned.
Net Income Formula
The net income formula can be expressed as:
Net Income = Revenue − COGS − Operating Expenses − Interest − Taxes − Other
Or: Net Income = Gross Profit − Operating Expenses − Interest − Taxes. Gross profit = Revenue − COGS. All figures come from the income statement.
Example: Revenue $1B, COGS $400M, operating expenses $300M, interest $20M, taxes $70M → Net income = $1,000M − $400M − $300M − $20M − $70M = $210 million.
How to Find Net Income
How to find net income: Open the income statement (also called the profit and loss or P&L statement). Net income is the last line—typically labeled "Net Income," "Net Earnings," or "Profit (Loss)." For public companies, use the 10-K (annual) or 10-Q (quarterly) filings, or the earnings release.
Where it appears
The income statement flows: Revenue → COGS → Gross Profit → Operating Expenses → Operating Income (EBIT) → Interest → Pre-tax Income → Taxes → Net Income. Some statements show "Net Income Attributable to Shareholders" if there are non-controlling interests—that is the figure used for EPS.
Annual Net Income
Annual net income is net income for a full fiscal year (12 months). It is reported in the annual 10-K and year-end earnings release. Annual net income is used for yearly EPS calculations, dividend payout ratios, and year-over-year growth analysis.
When comparing companies or evaluating valuation metrics (e.g., P/E), use trailing 12-month (TTM) or annual net income for consistency. Quarterly net income can be seasonal; annual figures smooth out fluctuations.
What Is Net Operating Income?
What is net operating income? Net operating income (NOI) is profit from operations before interest and taxes. For corporations, it is often equivalent to EBIT (earnings before interest and taxes) or operating income.
NOI = Revenue − COGS − Operating Expenses (including depreciation and amortization). It excludes interest expense and income taxes. NOI shows profitability from core operations, independent of financing and tax structure. In real estate, NOI typically means rental income minus operating expenses (property taxes, insurance, maintenance, etc.).
What Is the Difference Between Gross and Net Income?
What is the difference between gross and net income? They represent different levels of profit on the income statement:
- Gross income (gross profit): Revenue minus cost of goods sold. Measures profit from core product or service sales before other expenses. See gross margin for more.
- Net income: Gross profit minus operating expenses, interest, taxes, and other items. The final bottom-line profit after all costs.
A company can have positive gross income but negative net income if operating expenses, interest, or taxes exceed gross profit. Gross focuses on production or sales efficiency; net reflects total profitability. Both matter—gross shows margin on products; net shows what is left for shareholders.
Net Income vs. Cash Flow
Net income is an accounting measure; it includes non-cash items (depreciation, amortization, accruals). Cash flow reflects actual cash movements. A company can report positive net income but negative cash flow if it has large non-cash expenses or working capital changes. See free cash flow for how earnings translate to cash.
Net Income Example
Company A: Revenue $500M, COGS $200M, operating expenses $150M, interest $10M, taxes $35M. Gross profit = $300M. Net income = $300M − $150M − $10M − $35M = $105M. Company B: Revenue $300M, COGS $100M, operating expenses $250M → Operating loss $50M before interest and taxes. With interest and taxes, net income would be negative. Company B has positive gross profit but is unprofitable at the net level due to high operating expenses.
Frequently Asked Questions
What is net income?
Net income is a company's total profit after deducting all expenses, including cost of goods sold, operating expenses, interest, taxes, and other items. It appears at the bottom of the income statement—often called the "bottom line." Net income = Revenue − All Expenses. It is used for EPS, ROE, and valuation.
What is the net income formula?
The net income formula is: Net Income = Revenue − Cost of Goods Sold (COGS) − Operating Expenses − Interest − Taxes − Other Expenses. Or: Net Income = Gross Profit − Operating Expenses − Interest − Taxes. It can also be stated as: Net Income = Total Revenue − Total Expenses. All figures come from the income statement.
How do you find net income?
To find net income, look at the income statement (profit and loss statement). Net income is the last line—often labeled "Net Income," "Net Earnings," or "Profit (Loss)." It may appear as "Net Income Attributable to Shareholders" if there are non-controlling interests. Use annual reports or quarterly 10-Q/10-K filings for public companies.
What is net operating income?
Net operating income (NOI) is operating income—revenue minus operating expenses (COGS, SG&A, depreciation, etc.)—before interest and taxes. NOI = Operating Revenue − Operating Expenses. In real estate, NOI is rental income minus operating expenses. For corporations, it is often the same as EBIT (earnings before interest and taxes). It excludes financing and tax effects.
What is the difference between gross and net income?
Gross income is revenue minus cost of goods sold (COGS)—profit from core operations before other expenses. Net income is gross profit minus operating expenses, interest, taxes, and other items—the final "bottom line" profit. Gross focuses on production efficiency; net reflects total profitability after all costs. A company can have positive gross income but negative net income if other expenses exceed gross profit.