What is Net Income? Net Income is also called Net Earnings, Net Profit or the Bottom Line. Bottom Line as in: the final item in a company’s profit and loss statement or income statement, which is an overview of how much a company has earned during a period of time: a month, a quarter, or a year.

⏱️TIMESTAMPS⏱️
00:00 Net Income in the P&L
02:10 Net Loss
02:35 Net income attributable to common stockholders
03:00 Earnings from continuing operations
03:48 Earnings Per Share (EPS)

While Net Income is the Bottom Line, Revenue is the Top Line. Revenue in its simplest form is the sum of the invoices sent to customers for the goods that you have delivered or the services that you have provided. In between Revenue and Net Income are all kinds of expenses or costs. Which expenses exactly depends on the type of business you are looking at. In the profit and loss statement of a manufacturing company, if the company reports on expenses by function, you usually see the following categories:
Manufacturing costs like material, labor and manufacturing overheads end up in Cost of Goods Sold (sometimes called COGS).
The costs of non-manufacturing functions like the general manager, sales people, marketing team, customer service, human resources, finance, legal and IT go into SG&A (Selling, General and Administrative expenses).
Research and development expenses get reported as a separate line item.
Deduct interest and taxes, and you get to Net Income.

Net Income isn’t the only level of profitability you can focus on. If you only deduct cost of goods sold from revenue, you get to gross margin. If you deduct COGS as well as SG&A and R&D, you get to operating margin. If you deduct total expenses from revenue, you get to net income.

If you look at the #profitandloss statement of a company that sells services, or the #incomestatement of a bank, you might see different expenses listed compared to what we see here for a manufacturing company. But the idea remains the same: revenue minus total expenses equals net income.

So does a profit and loss statement, or income statement, always end with Net Income? Not necessarily, it can also be a Net Loss. If you are a cruise operator in the middle of a pandemic, and only generate $1.9B in revenue, while your total costs are $11.4B in the same year, then the bottom line is a net loss of $9.5B.

You might also find that a company has two #netincome lines. In the case of Tesla: net income, and net income attributable to common stockholders. Noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or indirectly, to the parent. A small part of the total net income is attributable to these third party shareholders.
You might even find that a company has four net income lines. In the annual report of GE in 2022, net earnings are $292 million. When noncontrolling interests, or minority interests, are deducted, the net earnings attributable to the company are $225 million. When preferred stock dividends are deducted from that number, the net loss attributable to GE common shareholders is $64 million. You can also go in the other direction: take net earnings and add back the loss from discontinued operations to get to earnings from continuing operations of $936 million. Take your pick of the most meaningful net income number!

Net income is an absolute number, showing what is left in earnings after deducting total expenses from total revenue. You can express net income on a per share basis as well, which is called earnings per share or EPS. For Apple in fiscal year 2022, $99.8B in net income divided by 16.3 billion shares equals $6.11 in earnings per share.

Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In!

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