Financial modelling terms explained

# Net Income

Net Income is the difference between total revenue and total expenses. It is calculated by subtracting total expenses from total revenue. Subtracting expenses from revenue results in net income or profit.

## What Is Net Income?

Net income is the company's total profit or loss for a given period of time. This figure is found by subtracting a company's expenses from its total revenue. Net income is also known as "profit" or "income." This number is important for both investors and company managers, as it indicates how successful a company is at generating revenue and keeping costs low. A high net income is typically a good indicator that a company is doing well, while a low net income may suggest that a company is struggling.

## How Do You Calculate Net Income?

There are a few steps involved in calculating net income: 1) Start with revenue. This is the total amount of money that a company has earned over a specific period of time. 2) Subtract the cost of goods sold. This is the amount of money that was used to produce the revenue. 3) Add any other income, such as interest earned on investments. 4) Subtract any other expenses, such as employee salaries. 5) Calculate the company's tax liability. 6) Calculate the company's net income. This is the final amount of money that the company has earned after all expenses have been accounted for.

## What Is the Formula for Net Income?

Net income is calculated as revenue minus expenses. Revenue is the total amount of money that a company earns from its normal business activities. Expenses are the costs of doing business, such as the cost of goods sold, salaries, rent, and utilities. To calculate net income, subtract the company's total expenses from its total revenue. This will give you the company's net income for the period.

## What Is the Difference Between Gross Profit and Net Income?

The two most common measures of a company's profitability are gross profit and net income. Gross profit is calculated by subtracting the cost of goods sold from total revenue. Net income is calculated by subtracting total expenses from total revenue. There are a few key differences between gross profit and net income.

First, gross profit does not include any of the company's operating expenses, such as salaries, rent, or advertising. Net income includes all of the company's expenses, including those that are not related to the cost of goods sold.

Second, gross profit is always positive, even if the company has negative revenue. Net income is always negative if the company has negative revenue, but it can be positive if the company has positive revenue.

Third, gross profit can be negative if the company's cost of goods sold is greater than its revenue. Net income can never be negative, because it includes all of the company's expenses, including those that are not related to the cost of goods sold.

Fourth, gross profit is always lower than net income. This is because gross profit does not include any of the company's operating expenses, while net income includes all of the company's expenses.

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