Fix of the Week: Net Income / Net Profit

The Term and Definition:

Net income is the bottom line of the income statement. It is what is left over from revenues after all costs and expenses are subtracted from revenue—cost of goods sold (for manufacturing businesses, or cost of services for service businesses), operating expenses, taxes, interest, one-time charges, noncash expenses such as depreciation and amortization, and any other costs not included in operating profit.

Net profit, net income, and net earnings all mean the same thing.

Example:

Here is a cute little sample income statement to show how net profit might be reflected on the income statement of a small, hypothetical company.

Book Excerpt

(Based on excerpts from Financial Intelligence, Chapter 8 – The Many Forms of Profit)

When someone asks, “What’s the bottom line?” he or she is almost always referring to net profit. Some of the key numbers used to measure a company, such as earnings per share and price/earnings ratio, are based on net profit. Yes, it is strange that they don’t just call it profit per share and price/profit ratio. But they don’t.

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