Question

1. What is the difference between Net Income and Net Profit? According to other statements Net Income is the amount a company gets after deducting preferred dividends. Net profit is the pure profit earned from company after taxes less expenses.

2. According to financial (Income Statements), why is the last line in this (income statement) called Net Income and not Net Profit instead. Since Net Income involves deducting preferred dividends and the Income statement doesn't deduct dividends.

Answer 1

1. Net profit is the actual profit earned bu the company. This amount is calculated after deducting all expenses, interest and taxes from the revenue. Profitability of a company is determined by Net profit. But Net income is the amount available for equity share holders. This amount is calculated after deducting dividend to preferred shareholders from the net profits. Earnings per share is determined by using Net Income.

2. Net income is informally known as the bottom line of income statement. As we all know financial statements are used by investors and shareholders to understand the performance and profitability of the company. As explained in the previous question, Net income is the amount available to the share holders after deducting preference dividends, and is used to calculate Earnings per share(EPS), which is one of the most significant figure shareholders looks forward to. Net profit is the mere profitability of the company. This is why the last line in income statement is called Net income.