What is the formula to calculate net income?

Net income is calculated as revenues minus expenses, which reflects a company's profitability over a specific period. This formula essentially measures how much money a business retains after all of its operating costs and expenses have been accounted for. By subtracting total expenses (including costs of goods sold, operating expenses, taxes, and interest) from total revenues, the resulting figure is the net income. This is an essential metric for assessing the financial health of a business, as it indicates the effectiveness of its revenue-generating capabilities against its expenditure.

In contrast, operating income minus taxes would only provide the net income after operating expenses and taxes, which does not capture the full picture before tax considerations. Multiplying revenues by expenses does not yield a meaningful financial result, as these figures do not relate in a manner that reflects profitability. Similarly, total assets minus total liabilities measures a company's net worth, known as equity, but does not convey the company's income or profit level during a period. Thus, revenues minus expenses is the only option that directly calculates net income.