What is annual net income? Annual net income is the remaining amount of earnings after the deduction of expenses from total revenue. Both “annual net income” and “net income” terms can be used in such sense, but annual net income specifically refers to a complete fiscal or financial year.
Net income, or net earnings, is defined by Investopedia as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. Net income is used by investors and businesses to access the difference between revenue and the expenses of the company, and thus, its profitability. Net income also refers to the income of an individual after taxes and deductions. It is usually listed at the bottom of a typical income statement for an organization or an individual.
Here is how to calculate annual net income:
Evaluating the annual net income of a company might help investors to make the right decision, as such information can be easily accessible from the company’s website or financial statement and leaves room for comparison with competitors. Business’s annual net income is the company’s revenue except for taxes, employee salaries, mortgages, utilities, etc. Personal annual income deductions include taxes, healthcare premiums, and retirement contributions.
Let us look at the example of a personal annual net income:
From the example above, we can see that Sarah’s total revenue is $53,012, while her total expenses make up $16,555. Sarah’s annual net income equals her total revenue minus her total expenses, that is $53,012 – $16,555 = $36,457.
Overall, understanding annual net income can be useful for individuals, companies, and investors alike since it allows us to figure out finances and be aware of the actual take-home, or net, income.