Definition:

Net Income is the total profit of a company after all expenses, taxes, and costs have been deducted from total revenue. It is often referred to as the "bottom line" because it is the final figure on an income statement.

Examples

1. A retail company reports a net income of $500,000 for the fiscal year after deducting all operating expenses, taxes, and interest from its total revenue.
2. A tech startup shows a net income of $200,000 in its quarterly report, indicating profitability after accounting for all costs and expenses.

Formula:

Net Income = Total Revenue - Total Expenses

How to use the metric:

Net Income is used to assess the profitability of a company. Investors and analysts use it to evaluate a company's financial health, compare profitability across companies, and make investment decisions. It is also used internally by management to make strategic decisions.

Limitations:

Net Income can be affected by accounting practices and non-recurring items, which may not provide a true picture of a company's ongoing profitability. It does not account for cash flow, which can be a critical factor in assessing a company's financial health.

Applies to:

Net Income is applicable across most industries, including retail, manufacturing, technology, and services, as it provides a clear measure of profitability.

Doesn't apply to:

Net Income may not be as relevant for non-profit organizations, as their primary focus is not on profitability but on achieving their mission. Additionally, industries with significant non-cash expenses or capital-intensive industries may require additional metrics for a comprehensive analysis.

Summary:

Net Income is a key financial metric that indicates a company's profitability after all expenses have been deducted from revenue. While it is widely used to assess financial performance, it has limitations due to accounting practices and does not reflect cash flow. It is applicable across most industries but may not be as relevant for non-profits or capital-intensive sectors.