What Is Net Income?

Net income is the ultimate measure of a company's profitability — the amount left over after every cost has been accounted for. It sits at the bottom of the P&L (hence "bottom line") and represents the profit available for distribution to shareholders as dividends or for reinvestment in the business.

The path from revenue to net income passes through several profitability layers: gross profit (after COGS), operating profit or EBIT (after operating expenses), profit before tax (after interest and other non-operating items), and finally net income (after corporation tax).

For FP&A purposes, net income is important but can be misleading in isolation. It is affected by financing decisions (interest expense), tax planning strategies, and one-off items that may not reflect ongoing operational performance. This is why FP&A teams often focus on operating profit or EBITDA for performance assessment while tracking net income for its balance sheet and dividend implications.

Net income feeds directly into the balance sheet through retained earnings. Each period's net income, less any dividends paid, adds to the cumulative retained earnings in shareholders' equity. This connection is fundamental to three-statement financial modelling.

For UK companies, net income is heavily influenced by the corporation tax rate (currently 25% for profits over £250,000, with marginal relief between £50,000 and £250,000), R&D tax credit claims, capital allowances, and the treatment of deferred tax assets and liabilities.