What is Net Income (NI)?
Net income (NI), also known as net earnings, measures how much revenue surpasses expenses for both businesses and individuals.
It is determined by subtracting various costs from total sales, including the cost of goods sold (COGS), operating expenses, depreciation, CPF contributions, interest, and taxes. NI is widely used as an indicator of profitability and is displayed on a company’s income statement.
For individuals, net income refers to earnings after taxes and deductions have been accounted for.
How does Net Income work?
Companies rely on NI to calculate earnings per share (EPS), an important metric for investors. You may often hear it referred to as the “bottom line” because it appears at the very end of the income statement after all expenses have been deducted.
In some regions, NI is also known as “profit attributable to shareholders,” as it represents the portion of earnings available to owners or investors after all costs are covered.
How to calculate Net Income for businesses
To calculate NI for a business, you must follow a structured process:
- Start with total revenue – This is the total amount earned before any expenses are deducted.
- Subtract operating costs and expenses – This includes rent, salaries, utilities, and other day-to-day business expenses.
- Deduct taxes – Once all expenses are considered, tax payments are subtracted to determine the final NI figure.
Since NI is a key financial measure, some companies might attempt to manipulate figures through aggressive revenue recognition or by hiding expenses. That’s why investors should always analyse financial statements carefully to ensure they reflect an accurate financial position.
What’s the difference: Personal Gross Income vs. Net Income?
Understanding the difference between gross income and NI is essential when managing personal finances.
- Gross income is the total amount earned before any taxes or deductions are applied.
- Net income is the remaining amount after all necessary deductions and tax payments have been made.
For example, if someone earns S$70,000 in gross income and qualifies for S$12,000 in deductions, their taxable income would be S$58,000. If the effective tax rate is 14%, they would pay S$8,120 in taxes. Their final NI would then be S$49,880.
Net Income on tax returns
Singapore follows a progressive tax system where income tax rates range from 2% to 22%, depending on income levels. Individuals can claim deductions for CPF contributions, donations, and reliefs such as the Earned Income Relief.
While net income is a common financial metric, tax forms primarily focus on gross income, adjusted income, and taxable income.
Company income statements
An income statement is one of the three key financial reports used by businesses to evaluate performance over a given period.
It details revenue, expenses, gains, and losses incurred within that timeframe. NI appears as the final figure on the income statement, reinforcing its nickname—the “bottom line.”
Investors and analysts use this document to assess a company’s profitability and overall financial health.
