Net Income

Net Income is the profit left after all costs, interest, and taxes. It appears at the very end of the income statement and is therefore often called the bottom line. It is used, for example, to fund dividends and reserves. From the shareholders' perspective it is the figure genuinely attributable to them, which is why it is used in metrics such as earnings per share, the price/earnings ratio and return on equity.

For assessing operating performance it is less suitable, because it is affected by financing structure, tax rate, accounting choices and one-off effects and therefore complicates comparison between companies. That is precisely why EBIT and EBITDA dominate transaction practice. Net income should be distinguished from distributable profit, which additionally reflects profit carried forward and transfers to reserves and forms the basis of the distribution resolution, and from cash flow, because depreciation, provisions and measurement changes affect earnings without an immediate cash payment. In the capitalised earnings method widely used in Germany, the calculation is based on the net inflows accruing to shareholders and is therefore closer to this figure than to a pre-tax measure.

In consolidated accounts the portion attributable to minority interests must also be separated. Net income is an important starting point for assessing distribution capacity. The amount actually distributable also depends on accumulated losses, reserves, legal restrictions and shareholder resolutions. Buyers and lenders additionally need to consider available cash: reported profit may be tied up in receivables or inventory and therefore unavailable for dividends or debt repayment. Analysis consequently checks how earnings convert into cash and what portion must remain permanently in the business.