How is net income calculated?

Net income is calculated by subtracting total expenses from total revenues. This measure reflects a company's profitability over a specific period and is a critical component of financial statements, particularly the income statement.

When revenues, which encompass all income generated from normal business operations, are greater than expenses, the result is a positive net income. Conversely, if expenses exceed revenues, the net income would be negative, indicating a loss.

The calculation of net income using revenues and expenses is fundamental in accounting as it provides insight into the company's operational efficiency and financial health. It is also an essential metric for stakeholders, including investors and management, to evaluate performance and make informed decisions about future operations and strategies.