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Net income

What is left after every expense, interest and tax: the bottom line of the income statement and the numerator of EPS.

Net income is the accounting answer to how much the owners earned. It flows into retained-earnings on the balance-sheet and, divided by weighted-average-shares, produces eps.

It is also the most manipulable single number in the accounts, because it sits at the end of a chain of judgements about depreciation lives, reserves, impairment and accruals. Comparing it with operating-cash-flow is the fastest sanity check available.

Example: Northwind Tools reports net income of $99M against operating cash flow of $164M. A firm whose net income was $99M but whose operating cash flow was $30M would deserve a much closer look at receivables and inventory.

Related: eps

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