Financial statements · updated October 21, 2026
What is a company's net income and how is it calculated
Net income is what is left for the company after every single cost is subtracted from sales: the products, the wages, depreciation, interest and tax. It is the last line of the income statement and belongs to shareholders: dividends are paid out of it.
Net income formula
- All operating costs
- Cost of goods, wages, rent, marketing, research and depreciation.
- Interest
- Interest paid on loans, minus interest received.
- Tax
- Corporate income tax owed.
Worked example
A company sells $10 billion, has operating costs of $8 billion, interest of $0.5 billion and tax of $0.3 billion.
With 400 million shares, earnings per share (EPS) come to $3.
How to read net income
Net income is compared with sales (net margin), with shareholders' equity (ROE) and with the share price (P/E).
When net income can fool you
One-off gains: selling a division or a revaluation inflates profit for a single year. Unusual tax: a tax credit or deferred tax can make profit look bigger. Profit is not cash: check operating cash flow too.
Related terms
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Questions about net income
Is net income the same as earnings per share?
No. Earnings per share (EPS) is net income divided by the number of shares. It is useful for comparisons, because companies have very different share counts.
Why can a healthy company report a net loss?
Because of one-off costs: a goodwill write-down, a fine or a restructuring can create an accounting loss in a year when the business is doing fine.
These explanations are for information only. They are not a recommendation to buy or sell.
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