DECA Financial Consulting Complete Practice Exam

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How is Net Income calculated in financial analysis?

Total Revenue - Total Expenses

Net Income is calculated by subtracting total expenses from total revenue. This calculation provides a comprehensive view of a company's profitability during a specific period. When a business generates revenue through its operations, that amount is totaled, and then all expenses associated with earning that revenue, such as operating costs, salaries, rent, and other overheads, are deducted. The resulting figure is the net income, representing the amount left over after all costs have been accounted for.

This formula is fundamental to understanding a company's financial performance and is often used by investors and analysts to gauge profitability. An accurate calculation of net income is crucial because it indicates the financial health of a business and its ability to generate profit after covering all obligations.

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Total Assets - Total Liabilities

Total Revenue + Total Expenses

Gross Income - Taxes

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