The Income Statement: Net Earnings (or Loss)

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The Income Statement: Net Earnings (or Loss)

See the sample income statement below for the location of net earnings (or loss).

It’s the bottom line

Net earnings (or net income) is the proverbial bottom line. It measures the amount of profit a company makes after all of its income and all of its expenses are accounted for. It also represents the total dollar figure that may be distributed to its shareholders.

Net earnings are also the typical benchmark of success. Just a reminder, however: many companies report net losses rather than net earnings.

How do we calculate net earnings? Let us take a look.

Net Earnings = Earnings Before Interest and Taxes – Interest Expense – Income Taxes

Interest and taxes

Interest expense is the amount of interest a company has paid to its debtors in the current year.

Income taxes are federal and state taxes based upon the amount of income a company generates. Many times a company will defer its taxes and pay them in later years.

Why study net earnings?

Net earnings is particularly important to equity investors because it is the money that is left over after all other expenses and obligations have been paid. It is the key determinant of what funds are available to be distributed to shareholders or invested back into the company to promote growth.