What does net income reflect for a company?

Net income is a critical financial metric that represents the profit a company has earned after all expenses, taxes, and costs have been deducted from total revenue. This figure provides a clear view of the company’s profitability and efficiency in managing its operations and expenses.

When a company calculates its net income, it starts with total revenue and subtracts costs such as operating expenses, cost of goods sold, interest, taxes, and any other expenses incurred during a specific period. The resulting figure—net income—indicates the company's financial performance, revealing how much profit the company has retained after fulfilling all financial obligations.

Understanding net income is essential for stakeholders, as it reflects not only the company’s profitability but also its capacity to reinvest, pay dividends, and sustain growth. Companies with positive net income are generally regarded as financially healthy, while negative net income might signal underlying issues that need addressing. Thus, net income is a vital indicator of the overall financial health of a company.