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Net Income is basically a business’s profit after taxation. This is calculated by taking the total revenue, which is all the money coming in from sales (or other business operations), minus direct business costs, deprecation and tax. This is an important figure as it basically determines how successful a business is. The more profit the better. The figure is also used to calculate a company’s earnings per share after part of the money is retained in the business for expansion etc.
Net income is known as the bottom line as it is the last thing noted on an income statement, and is perhaps the most important financial figure for a business.
An example of this would be:
$150,000 in sales revenue –
$50,000 in operating and direct costs –
= $90,000 net income
As far as an individual’s net income, this is calculated by taking the amount of income taxed owed, from the total amount of taxable income (total income minus tax credit and deductions). This then leaves an individual’s disposable income.
For example if your income was $40,000 and you have $10,000 in tax credits and deductions, your taxable income would be $30,000. If your income tax was $7,000 then your net income would be $23,000.
Net income is a figure that basically determines the wealth opportunities of a business and an individual. The more profitable a business, the more likely you are to invest because your return is safe. If a business is barely making a profit it is likely to go under, taking your investment with it.
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