Few numbers carry as much weight in business finance as net income. It’s often the figure that small businesses, investors, managers, and lenders look to first when sizing up businesses. From definitions to formulas and examples, understanding net and gross income builds a clear picture of financial performance. It can highlight how efficiently a company is run, help with decisions on growth or funding, and even show what’s left from monthly earnings after tax and deductions.
In this guide, we’ll cover the following:
- What is net income meaning
- What is adjusted net income?
- What is gross vs net income?
- How to calculate your net income
- Formula to calculate net income
- What is the net operating income?
- Operating income vs net income
- Net income example
- How do you calculate net from gross?
- What is net income margin?
- How to calculate net income margin?
- What is a good net income margin?
- Why net income matters
- How Dojo can help
- FAQs
What is a net income?
Net income is the profit left once all expenses, taxes, and interest have been taken away from total revenue. Often called “the bottom line,” it’s one of the clearest ways to measure profitability and plays a central role in financial reporting.
What is adjusted net income?
Adjusted net income (ANI) starts with standard net income but makes extra deductions or additions to give a clearer picture of taxable earnings.
For businesses, adjusted net income can also exclude one-off costs or gains, giving a clearer picture of the profit. In the UK, this figure also plays a role when completing a tax return for small business, as HMRC uses adjusted net income to decide on certain allowances.
What is gross vs net income?
So what is net income vs gross? Gross income, also called gross profit, is the total revenue a business brings in before any expenses are taken off. Net income, on the other hand, is what’s left once operating costs, interest, and taxes have been deducted.
For example, a company might generate £500,000 in revenue over the year. After subtracting £300,000 in expenses and £50,000 in taxes, the net income would stand at £150,000.
Understanding net and gross figures side by side is key to comparing revenue to real profit.
How to calculate your net income
Net income is calculated by subtracting all expenses from total revenue. That includes accounting figures such as operating costs, interest, depreciation, and tax.
Formula to calculate net income
Net income = Total revenue – Total expenses
This net earning formula is one of the simplest ways to see a company’s true profitability and the standard method for anyone learning how to compute net income in business accounting.
What is the net operating income?
Net operating income (NOI) looks specifically at the profit generated from a company’s core operations. It leaves out things like tax and interest, giving a clearer picture of how well the day-to-day side of the business is performing.
Operating income vs net income
The difference between operating income and net income comes down to scope. Operating income shows the profit made from running the business, while net income takes every cost into account – including tax and interest.
In simple terms:
Operating income = Core business profit - Net income = Final profit after all costs
Net income example
Take a business with £1 million in revenue. After covering £600,000 in operating costs, the operating income sits at £400,000.
Once tax (£80,000) and interest (£20,000) are deducted, the net income comes down to £300,000 – the actual bottom line.
This is also how to compute net income on an income statement.
How do you calculate net from gross?
Start with gross income, the total revenue before expenses, and subtract all costs, including overheads, interest, and tax. The result is net income, showing what’s really left once everything has been paid for.
What is net income margin?
A net income margin shows how much profit a business keeps as a percentage of its revenue. Unlike net income, which is reported as a single figure, the margin provides a relative measure of profitability, making it easier to compare performance across companies and industries.
How to calculate net income margin
The formula to calculate net income is:
Net income margin = (Net income ÷ Revenue) × 100
For example, if a business reports £250,000 in net income from £2.5 million in revenue, the net income margin works out at 10%.
What is a good net income margin?
What counts as a good margin depends on the industry. Sectors with heavy overheads, like retail or manufacturing, typically run on lower margins, while software or service-based companies often achieve higher ones. As a rough guide, a margin of 10% or more is generally seen as strong, but the most useful benchmark comes from comparing against businesses in the same space.
Metrics like the break even formula can also be used alongside net income margin to show when revenue starts covering all costs.
Industry | Typical net income margin | Why margins look this way |
Retail | 2 - 5% | High sales volumes but low margins due to competition, overheads and stock costs |
Restaurants | 3 - 6% | Profit squeezed by food and labour costs – location and efficiency make the difference |
Manufacturing | 5 - 10% | Capital-heavy sector with big fixed costs but reliable demand |
Construction | 5 - 7% | Project-based, with shifting costs and tight competition |
Professional services (Consulting, law etc) | 15 - 25% | Low overheads compared to fees, built on expertise rather than assets |
Software/SaaS | 20 - 30% | Scalable model with recurring revenue and low extra costs |
Financial services | 15 - 20% | Strong income from fees and interest, though regulation keeps margins in check |
Why net income matters
Net income is a key measure of financial health and one of the most important figures on a company’s income statement. It shows whether revenue is translating into real profit after expenses, tax, and interest. A positive net income gives businesses the flexibility to reinvest, manage cash flow, and build a reliable cashflow forecast.
For investors and lenders, net income is a key signal of performance, whether assessing a growing small business or a large enterprise. It indicates whether a company can generate consistent earnings, service debt, and deliver a return on investment. Looking at both net and gross measures together helps show not just final profit, but also the scale of revenue driving it.
In short, net earnings matter because it provides a clear, comparable view of profitability that guides decisions, secures funding, and supports growth.
How Dojo can help
Strong net income starts with reliable revenue, and that means making every transaction seamless. With our card machine, businesses can accept card payments quickly and securely, keeping customers happy and cash flowing without disruption. For small businesses and enterprises alike, that reliability can make a real difference to the bottom line.
Looking for more ways to boost efficiency and grow with confidence? Explore our Dojo blog for practical guides on everything from accounting and cash flow to marketing and customer loyalty.
