Net Income

Net Income, also known as the "bottom line" or profit, is what remains after subtracting all expenses from revenue. It's the ultimate measure of a company's profitability. The formula is: Net Income = Revenue - All Expenses (including Cost of Goods Sold, Operating Expenses, Interest, and Taxes).

Net income matters for several reasons: it's used in EPS calculations (Net Income divided by Shares Outstanding), it's the basis for P/E ratio through EPS, it determines dividend capacity since profits fund dividends, it enables year-over-year growth tracking, and it helps assess whether management generated profit.

Companies can use net income in various ways: reinvest in business growth, pay dividends to shareholders, buy back stock, pay down debt, or acquire other companies.

However, net income has limitations: it can be manipulated through accounting, one-time items can distort true profitability, it doesn't equal cash flow, and non-cash charges like depreciation affect it.

When evaluating quality of earnings, high-quality net income comes from recurring operations, is cash-backed, and derives from the core business. Low-quality net income comes from one-time gains, accounting adjustments, and non-operating income.

Companies often report "adjusted" net income excluding one-time items. Compare both adjusted and GAAP net income to understand true performance.