Net Income

What Is Net Income?

Net income is what remains after every cost of doing business has been deducted from revenue. This includes cost of goods sold, operating expenses, interest on debt, and income taxes. It is called the bottom line because it literally appears at the bottom of the income statement.

The formula is: Net Income = Total Revenue - COGS - Operating Expenses - Interest - Taxes. If a business earns $400,000 in revenue and has $350,000 in total expenses and taxes, the net income is $50,000.

Why It Matters for Your Business

Net income is the ultimate measure of whether your business is making money.

• True profitability: Unlike gross profit or EBITDA, net income accounts for every cost including taxes and interest. It shows what you actually earned.
• Dividend and distribution basis: Net income determines how much can be distributed to owners or reinvested in the business as retained earnings.
• Performance benchmark: Tracking net income over time and comparing it to industry peers reveals whether your business is improving, stagnating, or declining.

A common mistake is focusing solely on revenue growth while ignoring net income. A business growing revenue by 30% annually but seeing net income decline is heading for trouble. Sustainable growth requires both top-line and bottom-line improvement.