Net income is the total revenue minus total expenses. It represents the amount of money remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. Net income is not a measure of how much cash a company or property generates as it includes non-cash expenses such as depreciation. It is however, a “bottom line” figure that represents available income that could be distributed to common equity holders.
As an example calculation, if an LLC generates $150,000 of revenue, incurs $70,000 in operating expenses, claims $10,000 in depreciation, $15,000 in interest expenses and $20,000 in taxes, then it would produce $35,000 in net income ($150,000 less $70,000, less $10,000 less $15,000 less $20,000). “Note that net income is not the same as net cash flow or net operating income.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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