net income
The total profit remaining after all expenses, taxes, and deductions have been subtracted from revenue.
Example
“The company's net income was $5 million after paying taxes and all operating expenses.”
Memory Tip
A NET catches what's left. Net income = what's left in the net after all deductions.
Why It Matters
Net income is crucial because it shows the true profitability of a business or your personal finances after all obligations are met. Understanding net income helps you evaluate whether a company is actually making money or just generating revenue, which directly impacts investment decisions and financial planning.
Common Misconception
Many people confuse revenue with net income, thinking that the total money coming in is the actual profit available. However, revenue is just the starting point, and net income is what remains after all costs are paid, which is typically much lower than the initial revenue figure.
In Practice
Consider a small online store that generates 100,000 dollars in annual revenue. After subtracting the cost of goods sold (40,000 dollars), operating expenses like rent and salaries (35,000 dollars), and taxes (10,000 dollars), the net income would be 15,000 dollars, which is the actual profit the business owner can keep or reinvest.
Etymology
Net (remaining after deductions) + income — what's left after everything is deducted.
Common Misspellings
Small business accounting made simple
Related Terms
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