Net income

What is net income and how is it calculated?

Net income, which is also sometimes referred to as net earnings, is revenue minus expenses, interest and taxes. It is essentially the same as the overall profit of a business or its earnings, and is an indicator of a company’s profitability.

Net income is calculated as sales minus the cost of goods sold, selling, general and admin expenses, operating expenses, depreciation, interest, taxes and any other expenses. It’s a useful number for both managers and investors to be aware of in order to assess and understand how much revenue exceeds the overall expenses of the organisation.

Key takeaways from this section:

  • Net income is calculated as revenue minus expenses, interest and taxes.
  • Net Income represents an individuals or business’ total earning or pre-tax earnings after accounting for deductions and taxes in gross income.
  • Net income is used to determine and measure a company’s profitability over time, and can help with setting future goals for revenues etc.
  • If expenses and other reductions are greater than the actual income of the business, this will indicate a net loss.

Calculating net income for business

Most - if not all – businesses use net income to calculate their earnings per share. Many business analysts tend to refer to net income as the bottom line since it appears at the bottom of their business bank statements.

In order to calculate net income for businesses, you will have to start with the company’s total revenue, and then minus the business’ expenses and other operating costs in order to calculate the business’ overall earnings before tax. Then, minus the tax from this amount to get the net income.

Understanding net income

Net income in essence is an indicator of company profitability and is useful metric for managers and investors to assess exactly how much revenue exceeds the expenses of an organisation.

In many cases, investors, managers and creditors focus on the net income metric as not is it a good indicator of a company’s financial position but also demonstrates their ability to manage their assets efficiently.

Net income is also the perfect calculation to determine a company’s bottom line, make estimations and also make projections for the future.

Net income FAQs

What is net income?

Net income is the amount of accounting profit a company has left over after paying off all of its expenses. It’s calculated by subtracting cost of goods sold, selling, general and admin expenses, operating expenses, depreciation, interest, taxes and other expenses from overall sales to understand what your net earnings – or net income is.

What is the difference between net income and gross profit?

Whilst net income is total earnings and income minus taxes and any other expenses, gross profit can refer to the income or profit that remains after production costs have been subtracted from the revenue.

Both are critical and important profitability metrics for any business that can help to determine how much profit a company earns from the production and sale of its goods and services, determines how effectively a company has been managed and their overall profitability and much more.

Have you thought about Invoice Finance as a cash flow solution for your business?

Invoice finance allows you to release cash quickly from your unpaid invoices.

As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.

We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.

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The benefits of invoice finance companies such as Novuna Business cash flow

  • Boost your cash flow without having to wait up to 120 days for your customers to pay you

  • Release up to 90% of the invoice straight away, and the final 10% when the invoice is settled

  • Access funds within 24 hours from initial appointment with our revolutionary digital onboarding process

  • Benefit from our in-house credit control processes, allowing you to focus on running your business, instead of chasing clients for payment

  • Six month trial period followed by a rolling contract

Want to understand more Cash Flow Finance terms?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.

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