Net Income

Net Income or the bottom line is a good measure of how profitable a company is over a given period of time. Essentially, this is the number after all expenses have been deducted from the total revenue. In analyzing a company's performance, it's essential to look at this number and the numbers that were used so that you understand where they came from and how you arrived there.

The Formula: Net Income = Total Revenue - Total Expenses

Why is this important? Companies that continue to remain profitable year after year are, surprise surprise, statistically more likely to be around for the long haul. On a slightly more serious note, Net Income plays a big role in financial analysis and in calculating financial ratios. Knowing this number and the numbers surrounding it helps you to see whether the company is operating efficiently and effectively. Whether this number has gone down or up can be a signal that something is correct or wrong in sales, customer experience, expense management, etc.

Note: keep in mind that Net income isn't necessarily a measure of how much cash a company brought into the company. The reason for this is because most companies have at least some non-cash expenses like amortization and depreciation.

What to remember: While there certainly is a big picture outside of net income, this number is critical in determining the health of a company. Make sure that you have this number correctly calculated.