net income
/ net IN-kum /
After a long climb down the income statement — starting from sales, subtracting the cost of goods, then rent and wages, then interest and taxes — you finally arrive at a single number at the very bottom. It is the answer to the original question the lemonade-stand owner asked: after absolutely everything, did the business come out ahead, and by how much? That final figure is net income, which is why it is famously called 'the bottom line'.
Precisely, net income is what remains after every expense — cost of goods sold, operating expenses, interest, and taxes — has been subtracted from total revenue (and any gains added). The whole income statement is essentially the path to this number. For example: 500,000 revenue, minus 300,000 cost of goods sold, minus 120,000 operating expenses, minus 10,000 interest, minus 18,000 taxes, leaves net income of 52,000. If revenues plus gains exceed all costs, the result is positive net income; if not, it becomes a net loss.
Net income matters because it is the single most-watched summary of a company's performance: it flows into earnings per share, it drives the price-earnings ratio investors quote, and it increases retained earnings (or pays dividends). But it must be read with care. Net income is an accrual figure, not cash — a profitable company can run out of money. It can also be nudged by accounting estimates and choices. So the bottom line is essential, but it is a starting point for judgment, not the whole truth.
A shop with 500,000 revenue, 300,000 cost of goods sold, 120,000 operating expenses, 10,000 interest, and 18,000 taxes ends the year with net income of 52,000 — the bottom line that then increases its retained earnings.
Net income is the final number after every cost is subtracted from revenue.
The bottom line is not cash: net income is computed on the accrual basis, so a company can report a healthy profit and still be short of money to pay its bills.