Net Income
Definition
Net income, also known as the "bottom line," is the total profit remaining after all expenses, interest, taxes, and non-operating costs are subtracted from revenue. It represents the actual earnings available to shareholders and is the ultimate measure of a company's profitability.
Formula
Overview
Net income is what remains after every cost has been deducted from revenue: COGS, operating expenses, interest, depreciation, and taxes. It appears at the bottom of the income statement (hence the term "bottom line") and flows into retained earnings on the balance sheet.
For most venture-backed startups, net income is negative (a net loss) during the growth phase, and this is expected. What matters is the trajectory: losses should be decreasing as a percentage of revenue over time as the business scales. Persistent or growing losses without corresponding revenue growth is a red flag.
Net income differs from cash flow because it includes non-cash items like depreciation and stock-based compensation, and it follows accrual accounting rules. A company can report positive net income while experiencing negative cash flow if, for example, it has large outstanding receivables.
Example
A startup with $100K revenue, $20K COGS, $90K operating expenses, and $2K in interest has a net loss of $12K.
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