Net Income
Definition
Net income (the "bottom line") is the profit left for common shareholders after all expenses: cost of goods sold, operating expenses, depreciation and amortization, interest, taxes, and any other items. It is an accrual measure, so it includes non-cash charges and excludes cash items like capex and debt principal repayment.
Net income is the numerator of EPS, flows into retained earnings on the balance sheet (less dividends), and is the starting point of the cash flow statement under the indirect method.
Because it sits after interest expense, net income is a levered metric — it belongs to equity holders only, which is why it pairs with equity value (e.g., the P/E ratio), not enterprise value.
Why interviewers ask
Net income anchors the three-statement linkage questions and the levered-vs-unlevered metric pairing rule ("why can't you use EV/Net Income?"). The classic trap is treating net income as cash flow, or pairing it with enterprise value in a multiple — interviewers use both to filter candidates quickly.
Related terms
Interviews don't test definitions — they test recall under pressure.
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