Overview
Net income is the amount a company earns after deducting all direct and indirect expenses, interest and taxes from its sales revenue. Net income can also be referred to as net profit or net earnings. It is the very last line item on an income statement. It is also the actual amount of cash that would flow into the company's retained earnings account for dividend payments or reinvestment into the business. In order to arrive the net profit figure, we need to first start with the sales revenue, subtract the cost of goods sold (COGS), selling, general and administrative (SG&A) expense, other expenses, depreciation and amortization (D&A), and taxes to finally obtain the net profit. Net profit and the net profit margin are both useful measures of a company's profitability.

Linking to Other Financial Statements

The net income is linked to the other two of financial statements, the balance sheet and cash flow statement. On the balance sheet, it is used to calculate the ending retained earnings balance in the shareholders' equity section. The formula is given as follows: Ending retained earnings = Beginning retained earnings + Net income - Dividends If a company does not issue any dividends, then the change in retained earnings would simply equal to the net profit or loss in that particular period. In the cash flow statement, net earnings are included in the indirect method of calculating the operating cash flows.

Learn More About Net Income

Read CFI's guide to understand the definition of net profit, where to find the figure on an income statement, and its important in financial analysis. You can also browse all available accounting worksheets on CFI Marketplace to find more useful resources.  
Share
Reviews Add a review
No reviews yet

More From Corporate Finance Institute®

Browse our top rated business templates. See All
Energy Industry Comps Template Energy Industry Comps Template
315
21
This energy industry comps template provides a guideline and example of what a comparables universe would look like for a…
Financial Institution Dividend Discount Model
913
23
The financial institution dividend discount model uses future dividends to find the implied share price. This model is based on…
Loan Payment Calculator
582
0
The loan payment calculator allows users to determine the principal and interest payment each month until the full balance of…
DDM - Excel Dividend Discount Model Template
730
58
The dividend discount model template allows investors to value a company base on future dividend payments. This is based on…
Non-directional trading strategy template Non-directional Trading Strategies Template
622
0
The non-directional trading strategies template allow users to determine the profit when buying options. This template focuses on non-directional strategies…
restructuring financial model template preview 1 Restructuring Financial Model Template
900
0
This restructuring financial model template is used to demonstrate the financial interactions behind the restructuring process. Adjust this model to…