Net income vs. net profit: Is there a difference?

You’re reviewing a pitch from a founder who claims his startup made $1.2 million last year. But the income statement shows a net income of $38,000. What happened to the other $1,162,000? And is it worth investing anyway? That gap is what separates story from substance, and knowing how to read it separates guessing from good judgment.

In this guide, you’ll learn what net profit and net income really mean, how they’re calculated, and why these terms matter to anyone making decisions based on business performance.

What is net income and net profit?

Net income and net profit both refer to the same thing: the bottom line on a company’s income statement. It’s what’s left after subtracting the cost of goods, operating expenses, interest, and taxes from total revenue. (The word “net” always signals what remains after deductions, whether you’re talking about profit, income, or even pay, as in gross vs net pay.)

You’ll generally see “net income” in formal financials. “Net profit” tends to show up more often in informal settings or day-to-day business conversations. Either way, this number tells you whether the business is generating real financial return after expenses, and not just the obvious ones. It’s also the figure that feeds into retained earnings, which helps you understand how much you can afford to grow. 

Is net income the same as net profit?

Yes, for most businesses and most situations, “net income” and “net profit”can be used interchangeably. Whether you see it written as net income, net profit, or even net earnings, it all points to the same thing: your bottom line after all expenses have been deducted from total revenue. (Be careful not to confuse this with net profit vs. gross profit, which highlights a different part of your income statement.)

Where you’ll see a slight variation is in how the terms are used. Net income is often reported in formal financial statements, especially in corporate settings. Net profit is more common in conversation or informal reporting, especially when you’re explaining the number to someone without a finance background. Either way, both terms refer to what the business earned in a given period after everything else is paid.

What is the difference between net income and net profit?

In most contexts, net income and net profit mean the same thing. They both represent what’s left over after expenses have been deducted from total revenue. So when someone asks, “What is net profit?”, they’re usually asking about the bottom line on the income statement.

Still, the two terms can carry slightly different weights depending on where or how you use them.

Formality 

Net income is typically considered the more formal, accounting-driven term. You’ll see it in financial statements, tax filings, and board reports. Net profit, on the other hand, often shows up in everyday conversations or informal reports.

Audience

When you’re talking to investors or accountants, they’ll probably say net income. But if you’re explaining performance to a founder or a team lead, net profit may feel more intuitive, because it sounds more like actual money earned.

Industry usage

Some industries lean heavily on one term over the other. In tech and finance, net income is standard. In small businesses or e-commerce, people tend to say net profit, especially when walking through a net profit formula.

Presentation format

You’ll usually find net income as the final line on a formal income statement. Net profit, by contrast, might be used in slide decks, investor updates, or dashboards where plan language matters more than GAAP precision.

How net income and net profit are used

When people want to know how a company’s really doing, they look at net income and profit. These metrics are the clearest indicators of financial performance. No fluff, no projections, just the outcome of what your business actually did. 

Inventors and lenders use these figures to gauge whether a company is worth betting on. Business owners use them to decide when to hire, reinvest, or tighten their belt. And because net profit captures every cost, every earned dollar, and every adjustment, it’s also the number you watch year over year to see whether you’re growing or getting by.

Whether you’re comparing performance across quarters or setting targets for the next one, this is a number that keeps you honest about your real prospects. 

Importance of net income and net profit

Net income is where the numbers stop and the decisions begin. It’s the clearest signal of whether your business is actually making money and giving you something on which to build. 

Internally, it shows you how efficiently you operate. Are you spending too much to make too little? Are your margins holding up? Over time, tracking your net profit gives you a window into your business’s overall trajectory. 

Externally, that number matters just as much. Investors, lenders, and even potential partners look at net income to judge risk, stability, and growth potential. It’s not just a number. It’s your business, reduced to a single line that everyone understands.

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Net income formula

It’s a straightforward formula on paper:

Net Income = Total Revenue —Total Expenses

But don’t let that simplicity fool you. 

That net income figure isn’t just the result of plugging numbers into a calculator. It’s the outcome of dozens of decisions baked into the business: what you spend, what you keep, what you owe. Each line on your income statement tells part of the story, from the cost of goods sold to the taxes, interest, and smaller gains or losses that quietly shape your final numbers. Here’s how each of those pieces fits in.

Cost of Goods Sold (COGS)

Start with the direct costs tied to producing what you sell: things like materials, packaging, production, and labor. This is your cost of goods sold (COGS), and it’s the first thing that you subtract from revenue. It’s also how you move from gross revenue to gross profit.

Operating Expenses

Operating expenses are what you pay to keep the business up and running. It’s not money that goes directly into your product or service, but without these payments, you wouldn’t have a business to provide it. These essential expenses show up next on the income statement, and extracting them shows your operating income.

Operating Income (EBIT)

Operating income is what’s left once you’ve subtracted both COGS and operating expenses. It stands for Earnings Before Interest and Taxes and is usually written EBIT. It’s the absolute closest you can get to a snapshot of whether your core business model is working. 

Interest Expense

If the business has debt, the interest on those loans comes out next. Interest expense is a non-operating expense, but it still chips away at profit. You’ll want to factor it in before calculating net earnings. 

Taxes

Once everything else has been deducted, it’s time to pay the taxman. Depending on the structure of the business, this might mean corporate taxes, personal income tax, or a combination of both. Either way, it comes off the total before you hit the bottom line.

Other Income

From time to time, you may earn income from outside your usual operations in the form of a refund, asset sale, or investment gain. These show up under other income and can bump up your final profit, even if they’re singular events. 

Other Expenses

Just like with income, you may have one-time costs like legal settlements, write-offs, or currency losses. These sit outside the daily operations, but still affect the business’s net profit for the period.

How to calculate net income (net profit) in 7 steps

Calculating net income goes beyond plugging numbers into a formula. The process takes you on a deep dive into what you’re bringing in and where you’re spending. Anyone can get excited about the top line, but it’s the bottom line that tells the truth about how your business performs. Let’s break it down piece by piece. 

Step 1: Calculate total revenue

Start with what you brought in. That’s your total revenue. Every sale, every invoice, every dollar earned before costs counts. 

Step 2: Subtract COGS

Next, ask: What did it cost to make or deliver what you sold? That’s your cost of goods sold. Raw materials, direct labor, whatever’s tied to the product or service itself. Subtract it from revenue and you’ve got your gross profit.

Step 3: Subtract operating expenses

Then come the expenses that keep the lights on—literally. Rent, salaries, software, marketing, these are your operating expenses. Pull those out next, and what’s left is your operating profit. This is where you start to get an inkling of whether your business model works.

Step 4: Subtract non-operating expenses

Don’t forget what sits outside the day-to-day. Interest on loans, for example. These non-operating expenses still eat into profit, even if they’re not part of core operations, so deduct them, too.

Step 5: Subtract taxes

Taxes are last on the chopping block. Take out whatever you owe based on the business’s earnings before tax. What’s left belongs to the company.

Step 6: Add/subtract other income/expenses

Sometimes, money comes in from outside the business. From equipment sales, for example, or earned interest. Sometimes, it goes the other way. Add or subtract these one-offs to account for the whole financial picture. 

Step 7: Review and adjust for accuracy

Now you’ve got your net income: what the business earned after deducting all your outflows. Before you file it away, look at it like a forensic accountant. Does it make sense? Is anything missing? A clean bottom line is good, but a true one is better. Not sure how to format this information for posterity? It’s worth learning how to prepare an income statement.

Net income (net profit) calculation example

Let’s break down a simple example to demonstrate how a business calculates its net income (also known as net profit). 

Imagine you run a small online shop. Over the past year, your total sales revenue (or gross revenue) was $250,000. That’s your top line. From there, you subtract all business expenses to find your bottom line. 

To calculate your net income, apply the formula:

Net Income = Total Revenue - Total Expenses

Net Income = $250,000 - $207,000

Net Income = $43,000

That $43,000 represents what your business actually earned, and it appears on the bottom line of your income statement.

How to find net income on an income statement

The income statement lays out your company’s earnings step by step, from the top line to the bottom line. At the very top, you’ll see total revenue, also called gross revenue or sales revenue. As you move down, each line shows how much was deducted, including the cost of goods, operating expenses, taxes, and more. The final number at the bottom is your net income.

We call this number the bottom line for a reason. It reflects your business’s actual profitability after accounting for everything else. You’ll also see this figure carried over into the retained earnings section of your balance sheet, since any profits not distributed as dividends stay within the company. 

Here’s an example of a basic income statement with net income clearly labeled—here, it’s $150,000. You might also consider using a financial statement template to make it easier to compare and contrast data across key time periods.

Streamline financial management with Rippling

When you can track spend precisely, you’re not just managing expenses. You’re protecting your net income. The clearer your controls, the more accurate your bottom line.

Rippling consolidates all of your company’s finances—from payroll and benefits to corporate cards and expense management–giving you an up-to-date view of cash flow across your company and offering unprecedented control over spending patterns.  

While most expense management solutions only allow for basic employee-manager approval chains, Rippling’s expense management software runs on an advanced policy engine. Set hyper-custom policies based on the vendor, dollar amount, and expense category, helping you block out-of-policy expenses with ease. You can also tee up automated workflows that help you control spend, like triggering an alert when a department’s expenses sharply increase. 

With Rippling, you can: 

• Automatically route expenses and bills to the right approver every time. 

• Flag out-of-policy spending with hyper-custom policies, like by vendor or value, for further review. 

• Close the books faster with AI-powered transaction categorization, and integration with your accounting systems.

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Net income vs net profit FAQs

What is the difference between net income and cash flow?

Net income is your accounting profit—what’s left after you’ve deducted all expenses, including taxes and interest, from total revenue. Cash flow, on the other hand, tracks the actual amount of money flowing into and out of your business. You can show a positive net income and still have poor cash flow if your receivables are slow or your bills come due at the wrong time. In short, net income is what you have on paper; cash flow is what you have in your bank account.

How do you calculate net income from a balance sheet?

You can’t calculate net income directly from a balance sheet, but you can cross-check it. Take the retained earnings at the end of the current period, subtract the retained earnings from the previous period, and then subtract any dividends paid. The result is your net income for that period. For full details, you’ll want to look at the income statement, since that’s where net income gets reported as the bottom line.

What is the difference between gross and net revenue?

Gross revenue shows your total sales before anything gets taken out. Net revenue is what you actually keep after deducting things like discounts, returns, and other direct costs. If you want a clearer picture of how much money your business brings in, look at net revenue. The gap between gross and net tells you how much you're losing before you dig into expenses.