Net income is revenue minus all costs: cost of goods sold, operating expenses, interest on debt, and taxes. It is the last line on the income statement — the “bottom line.”
Revenue − COGS = Gross profit Gross profit − Operating expenses = Operating income Operating income − Interest − Taxes = Net income
Net income tells you whether the business is profitable after everything is accounted for. A positive net income means the business earned more than it spent. A negative net income (net loss) means the opposite.
Net income is not the same as cash. Depreciation reduces net income but doesn’t consume cash. Accounts receivable increases revenue (and net income) before cash is collected. Capital expenditures consume cash but don’t appear on the income statement (they appear on the balance sheet and are depreciated over time). This is why a profitable business can run out of cash, and why the cash flow statement exists as a separate document. See Reading Financial Statements and Managing Cash Flow.