The term __ is used to mean operating income minus income taxes. a. contribution margin b. investment income c. gross income d. net income
The correct answer and explanation is:
The correct answer is d. net income.
Net income is the amount of money a company has left after subtracting all expenses, including operating costs and income taxes, from its total revenue. It is often referred to as the “bottom line” because it appears at the bottom of the income statement and shows the actual profit of a company during a specific period.
Operating income, also called operating profit or earnings before interest and taxes (EBIT), represents the profit a company makes from its core business operations before deducting income taxes and interest expenses. When income taxes are subtracted from operating income, the resulting figure is net income.
Contribution margin, option a, refers to sales revenue minus variable costs. It indicates how much revenue is available to cover fixed costs and contribute to profit but does not account for taxes or other expenses.
Investment income, option b, refers to income earned from investments such as dividends, interest, or capital gains and is separate from operating income.
Gross income, option c, usually refers to total revenue minus the cost of goods sold (COGS). It shows the profit from production but excludes operating expenses, taxes, and other costs.
Net income is a critical measure of profitability because it reflects the overall financial health of a business after accounting for all costs and obligations. Investors, analysts, and management use net income to assess performance, make investment decisions, and plan future strategies. It is also the basis for calculating earnings per share (EPS), which helps shareholders understand the value generated per share of stock.