Net Income After Taxes (NIAT)

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Net Income After Taxes (NIAT)

What Is Net Income After Taxes?

The phrase “net income after taxes” (NIAT) refers to a company’s profit after all taxes have been paid. Net income after taxes is an accounting phrase that appears often in a company’s quarterly and yearly financial reports. After deducting all expenses from revenue, net income after taxes reflects the profit or earnings. Net income after taxes may be calculated as a total monetary number as well as a per-share computation.

Key Takeaways

  • The phrase “net income after taxes” (NIAT) refers to a company’s profit after all taxes have been paid.
  • After deducting all expenses from revenue, net income after taxes reflects the profit or earnings.
  • Companies that raise their net income have more capital to invest in their future, pay dividends, and repurchase shares.

Understanding Net Income After Taxes (NIAT)

Net income after taxes (NIAT) is a company’s net income minus all taxes. In other words, NIAT is the total of all revenues earned by the sale of the company’s goods and services less the expenses of operation. Companies may occasionally use the terms revenue and sales interchangeably. Also, since consumers often return products, retail organizations frequently use the terms net revenue or net sales. The entire amount of refunds given consumers from returns is subtracted from the period’s revenue total.

Whatever phrase a firm uses to represent its total revenue collected through sales, revenue is always at the top of the income statement. As a consequence, revenue is the amount from which all costs and expenditures are removed, yielding net income at the bottom of the income statement. As a result, revenue is referred to as the top line, while net income is referred to as the bottom line.

  Determining Adjustments to Income on Your Tax Return

Net income after taxes is computed by collecting revenue and deducting all expenditures and costs incurred by a business, including the following:

  • Cost of products sold, which reflects manufacturing expenses such as direct labor and direct materials or inventories.
  • Depreciation is the process of expensing or spreading the cost of fixed assets over the useful life of the asset.
  • Charge-offs are one-time write-offs or losses.
  • Interest expenditure on any debt, including short-term debt, and the interest component of long-term debt, such as bonds issued during that time
  • Taxes paid to the government
  • On the revenue statement, selling, general, and administrative expenses include the employees and facility for the corporate office (SG&A)
  • Spending on research and development

Although net income after taxes and net income are practically the same, term is used in financial statements to distinguish between income before taxes and income after taxes. The two statistics are often known as pre-tax and after-tax income.

Interpreting Net Income After Taxes

One of the most scrutinized metrics on a company’s financial records is net income after taxes. The amount recorded indicates a business’s profitability, which affects whether the company can reward its investors and shareholders via dividends and share buybacks. Dividends are cash payments made to shareholders, while buybacks are stock repurchases made by a firm.

Profit growth over time often leads to a rise in the company’s stock price because investors have a more positive opinion of the firm. As a company’s net income grows, it has more cash to spend in its future, which might include acquiring new equipment, innovations, or increasing operations and sales. A firm with good net income growth is also better positioned to pay down debt or make an acquisition to increase its competitiveness and total revenue.

  Tax Deferred Definition

A corporation with a negative or below-average net income number may be the consequence of a fall in revenue, inadequate spending management, obsolete technology, excessive debt, or a poorly implemented management plan.

A corporation with negative net income—or losses—may also be a start-up company that will take years to earn a profit. Instead of looking at net income, investors look at revenue growth to see whether the firm has the potential to become profitable in the future.

A rise in a company’s net income after taxes might be attributed to a reduced tax rate or preferential tax treatment. Investors should compare gains in NIAT to pre-tax income to confirm that the higher profit is attributable to revenue growth rather than a tax windfall.

Special Considerations

Net income after taxes (NIAT) is not the entire cash generated by a corporation during a particular period since it is calculated by subtracting non-cash expenditures such as depreciation and amortization from revenue. Instead, the cash flow statement refers to how much cash a firm makes over a certain time period.

While net income after taxes is one of the most dependable gauges of a company’s profitability, various accounting scandals have shown it to be less than 100% trustworthy throughout the years. It’s vital to remember that net income is a useful indicator for assessing a company’s profitability. However, the stated financial metrics of a firm are only as credible as the company behind them.

Investors may use a variety of financial indicators or ratios to compare the net income of numerous organizations. Profit margin, which represents NIAT as a percentage of a company’s total revenue, is a prominent profitability measure. The profit margin is the amount of profit generated by a corporation for every dollar of sales. A corporation with $1 million in sales and $200,000 in profit, for example, has a 20% profit margin ($200,000/$1,000,000 =.20 *100 to convert.20 to a percentage). In other words, for every dollar of sales revenue, the corporation receives $0.20 in profit. Profitability analysis may assist investors in determining if a company’s net income is competitive.

  Tax Break Definition

Real World Example of Net Income After Taxes

According to the company’s 10-Q filing, the income statement for Apple Inc. (AAPL) for the fiscal quarter ended Dec. 28, 2019 is as follows:

  • Apple’s pre-tax income for the quarter ending December 2019 is highlighted in blue towards the bottom of the announcement.
  • According to the income tax deduction (highlighted in red), Apple paid $3.6 billion in taxes throughout the quarter.
  • For the quarter, net income (highlighted in green) was $22.2 billion.
  • In other words, Apple earned $22.2 billion in net income after taxes in December 2019, up from $19.9 billion the previous year.

Example of net income after taxes using Apple Inc. Investopedia

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