How is net income calculated?

How is net income calculated?

• A. Total Revenue - Total Expenses
• B. Total Assets - Total Liabilities
• C. Total Revenue + Total Equity
• D. Total Revenue / Total Expenses

Answer: (A)

Net income is calculated by taking total revenue and subtracting total expenses. This figure represents the profit a business makes over a specific period after all costs of doing business, including taxes and other expenses, have been deducted from revenue. This approach provides a clear picture of a company's financial performance, indicating how well it can generate profit from its operations. Understanding this calculation is fundamental for assessing a company's profitability and overall financial health. In contrast, the other options relate to different financial concepts like balance sheet metrics or ratios, which do not reflect the operational profitability of a company.

Net income is calculated by taking total revenue and subtracting total expenses. This figure represents the profit a business makes over a specific period after all costs of doing business, including taxes and other expenses, have been deducted from revenue.

This approach provides a clear picture of a company's financial performance, indicating how well it can generate profit from its operations. Understanding this calculation is fundamental for assessing a company's profitability and overall financial health. In contrast, the other options relate to different financial concepts like balance sheet metrics or ratios, which do not reflect the operational profitability of a company.