One of the most important metrics for businesses and investors to track is net income. This is also sometimes referred to as net profit, net earnings, or — more colloquially — "the bottom line," which refers to the profits left over after total expenses have been deducted. But if the company sells a valuable piece of machinery, the gain from that sale will be included in the company’s net income. That gain might make it appear that the company is doing well, when in fact, they’re struggling to stay afloat. Operating net income takes the gain out of consideration, so users of the financial statements get a clearer picture of the company’s profitability and valuation.

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Not to be confused with plain old net income, operating net income is certainly different. Thus, you can understand the efficiency net income of your business operations by tracking its net income. Increasing net income gives you an understanding that you are efficient.

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How do you calculate the net income margin?

Net income is gross profit minus all other expenses and costs and other income and revenue sources that are not included in gross income. Some costs subtracted from gross profit to arrive at net income include interest on debt, taxes, and operating expenses or overhead costs. Lenders and financial institutions use net income information to assess a company's creditworthiness and to make lending decisions.

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It's located on the bottom line of the income statement, which is why you'll sometimes hear the term "bottom line" being used in lieu of "net income." Net income is one of the most important line items on an income statement. Since the net income value by itself does not offer much insight into Apple’s profitability, we’ll calculate the net profit margin by dividing net income by revenue.

The income statement includes the gains, losses, revenue, and expenses that a company reports in that period. Net income appears on a company’s income statement and is an indicator of a company’s profitability. Net income also refers to an individual’s income after taking taxes and deductions into account.

Cash flow for your business: What you need to know

• Operating expenses include overhead costs, such as salaries, licensing costs, or administrative activities.
• You’ll usually find your business’ COGS listed near the top of your income statement, just under revenues.
• If you’ve ever heard someone refer to how much money they earn in a year, they’re usually talking about their gross income.
• One of the most important metrics for businesses and investors to track is net income.
• If a company is generating substantial net income, its current operations may have little reason to change.
• You can improve your personal net income by increasing income (revenue), reducing costs (expenses), or alternatively, doing both.