Net income
AccountingThe profit left for equity holders after every cost, including interest and tax.
Also written: net profit, earnings, bottom line
Net income is the last line of the income statement, and the point is what has already been deducted to get there. Operating costs, depreciation, interest and tax have all been taken out, so what remains belongs to the shareholders.
Because interest sits above it, net income is a levered measure. Two identical businesses with different debt loads report different net income, so comparing companies on net income or on P/E embeds their financing choices in the comparison. That is the argument for EBITDA and enterprise value when the question is about the operating business rather than the equity.
It is also an accrual figure containing non cash charges, so it is not cash earned. The cash flow statement starts here precisely because net income is the number everyone quotes and the number that needs the most correction.
Net income drives two other things worth remembering. It is the numerator of earnings per share, once preferred dividends and minority interests are stripped out, and it is what flows into retained earnings on the balance sheet, which is how the income statement and balance sheet stay connected period to period.
Worked example
Two identical businesses each earn 160 of EBIT. One has no debt, the other pays 30 of interest.
At a 25% tax rate the unlevered company earns 120 of net income and the levered one 97.5. Nothing operational differs.
That is why comparing them on P/E embeds a financing choice, and why EBITDA against enterprise value is the fairer comparison.