A company's
total revenue less its
operating expenses,
interest paid, and
depreciation, but not taxes. For example, a widget manufacturer earns $1,000,000 in
total revenue. The widgets cost $200,000 to make and his administrative and payroll expenses total $250,000. He also must subtract $50,000 in depreciation on his widget manufacturing equipment. His net income is stated as: $1,000,000 - $200,000 - $250,000 - $50,000 = $500,000. It is important to note, however, that this number does not include any taxes that the widget manufacturer must
pay that year; this fact is what differentiates pretax earnings or profits from
net income.