Net Income (Bottom Line)

Net income is what a company keeps after every expense, from the cost of making its products to operating costs, interest and taxes, has been subtracted from revenue. It sits at the bottom of the income statement, which is why it is nicknamed the bottom line. It is the broadest single measure of whether a business is actually profitable.

Investors lean on net income in a few ways:

• Earnings per share: net income divided by shares outstanding gives EPS, the figure most directly tied to a stock's valuation.
• Margins: dividing net income by revenue gives the net profit margin, showing how many cents of each sales dollar survive to the bottom line.
• Quality check: net income can be flattered by one-off gains or dented by one-time charges, so compare it against cash flow to see whether the profit is real.
• Trend over level: a single quarter matters less than the direction. Rising net income on rising revenue is the healthy combination investors want.

Suppose a company books $100 million in revenue, spends $42 million making its products, $24 million running the business, and $12 million on interest and taxes. What is left, $22 million, is its net income, a 22% net margin.