Net income is the profit a company keeps after subtracting every cost — COGS, operating expenses, interest, and taxes — from total revenue. The formula is Net Income = Total Revenue − Total Expenses. Because it sits at the bottom of the income statement, it's known as the "bottom line."
What is Net Income?
Net income is the single clearest measure of profitability: what's actually left for the business and its owners once all expenses are paid. Investors and analysts watch it closely because it rolls every cost — production, operations, financing, and tax — into one number that tells you whether the company made or lost money.
The Net Income Formula
Net Income = Total Revenue − Total ExpensesThe "bottom line"
"Total expenses" means everything: cost of goods sold, operating costs, interest on debt, and taxes. In practice you calculate it step by step down the income statement.
How to Calculate Net Income (Step by Step)
- Start with revenue: total money earned from selling products or services.
- Subtract COGS: the direct cost of producing what you sold → leaves gross profit.
- Subtract operating expenses: rent, salaries, marketing, utilities → leaves operating income.
- Subtract interest: the cost of any debt the company carries.
- Subtract taxes: what's owed on the remaining earnings → leaves net income.
Worked example
| Line | Amount |
|---|---|
| Revenue | $500,000 |
| − COGS | $200,000 |
| = Gross profit | $300,000 |
| − Operating expenses | $180,000 |
| − Interest | $10,000 |
| − Taxes | $22,000 |
| = Net income | $88,000 |
Net Income = $500,000 − $200,000 − $180,000 − $10,000 − $22,000 = $88,000Worked example
Positive vs Negative Net Income
- Positive net income means the company is profitable — revenue exceeds total expenses.
- Negative net income (a net loss) means expenses outran revenue. Common and often expected for early-stage startups investing in growth.
Net Income vs Gross Profit vs Operating Income
| Metric | What it subtracts from revenue |
|---|---|
| Gross profit | COGS only |
| Operating income | COGS + operating expenses |
| Net income | COGS + operating expenses + interest + taxes |
Net Income FAQ
What is the formula for net income?
Net Income = Total Revenue − Total Expenses, where total expenses include COGS, operating expenses, interest, and taxes. Work top-down from revenue, subtracting each cost layer in turn.
Why is net income called the bottom line?
It's literally the last line of the income statement — after every expense has been subtracted. "The bottom line" has become shorthand for a company's final profit.
Is net income the same as profit?
Net income is the most complete measure of profit. "Profit" can loosely mean gross profit or operating profit, but net income is the final figure after all costs, so it's often what people mean by "the profit."
Can net income be negative?
Yes. When total expenses exceed revenue, net income is negative — a net loss. It's common for growth-stage companies spending heavily to acquire customers ahead of profitability.
