Formula
Net Income
=
Revenue -
Cost of Goods Sold -
Selling, General, & Admin. Expense -
Research & Development -
Depreciation, Depletion and Amortization -
Interest Expense +
Non-Recurring Items -
Tax ExpenseNational Bankshares, Inc. Net Income Calculation
* All numbers are in millions except for per share dataNational Bankshares, Inc. Annual Data
| Dec03 | Dec04 | Dec05 | Dec06 | Dec07 | Dec08 | Dec09 | Dec10 | Dec11 | Dec12 |
|---|
| Net Income |  | | | | | | | | | |
|---|
National Bankshares, Inc. Quarterly Data
| Dec10 | Mar11 | Jun11 | Sep11 | Dec11 | Mar12 | Jun12 | Sep12 | Dec12 | Mar13 |
|---|
| Net Income | | | | | | | | | | |
|---|
Explanation
Net income is the most widely cited number in reporting a companys profitability. It is linked to the most popular earnings-per-share (EPS) number through:
Earnings per Share (EPS) = (
Net Income - Preferred Dividends) /
Total Shares Outstanding
Although Net Income and Earnings-per-Share (EPS) are the most widely used parameter in measuring a companys profitability and valuation, it is the least reliable. The reason is that reported earnings can be manipulated easily by adjusting any numbers such as Depreciation, Depletion and Amotorization and non-recurring items.
EPS is most useful for companies that have:
A predictable business
Consistent accounting methods
And few restructurings
The dividend paid to preferred stocks needs to be subtracted from the total net income in the calculation of EPS because common stock holders are not entitled to that part of the net income.
Beaware
Warren Buffett looks for consistency and upward long term trend. Because of share repurchase it is possible for net earnings trend to differ from EPS trend. He preferred net income over EPS. The companies with durable competitive advantage companies report higher % net earnings to total revenues.
Important: If a company is showing net earnings history greater than 20% on total revenues, it is probably benefiting from a long term competitive advantage.
If net earnings is less than 10%, likely to be in a highly competitive business
Related Terms
Revenue,
Cost of Goods Sold,
Selling, General, & Admin. Expense,
Research & Development,
Depreciation, Depletion and Amortization,
Interest Expense,
Non-Recurring Items,
Tax Expense,
Net Margin,
Non Operating Income* All numbers are in millions except for per share dataNational Bankshares, Inc. Annual Data
| Dec03 | Dec04 | Dec05 | Dec06 | Dec07 | Dec08 | Dec09 | Dec10 | Dec11 | Dec12 |
|---|
| Net Income | | | | | | | | | | |
|---|
National Bankshares, Inc. Quarterly Data
| Dec10 | Mar11 | Jun11 | Sep11 | Dec11 | Mar12 | Jun12 | Sep12 | Dec12 | Mar13 |
|---|
| Net Income | | | | | | | | | | |
|---|
European Shorting
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