UK Accounting Glossary
Net income is the revenues of a company minus all expenses incurred in generating those revenues. On the income statement, net income is “the bottom line,” the last item after all intermediate measures of income – including gross, operating, and pretax income – are indicated. As an income statement item, net income is always measured for a specific time-span; in the U.S., net income is reported each quarter and for the full year. Net income is more meaningfully expressed on a per-share basis, and net income per share (better known as “earnings per share,” or EPS) is perhaps the most important measure of a company’s success. Indeed, net income is central to many financial ratios analysts use to value stocks — most notably, the price-earnings ratio (the P/E), which is the stock price divided by yearly EPS. The main deficiency of net income is that it is measured under generally accepted accounting principles, with their complexities and uncertainties. As such, net income is a somewhat artificial figure that doesn’t reveal the actual amount of cash the company generated from operations.
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This glossary post was last updated: 7th February 2020.