How to calculate the net income of a year, Financial Management

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Is the net income of a year the money the company made that particular year or is it a number whose significance is quite doubtful?

The net income of a year is not money that accumulates in the safe. Thus, it is not "money" the company earned. On the other hand, it is one of the possible numbers (with the flexibility that accountancy provides) a company might have shown. Fernandez states that, generally, cash flow is more useful than net income: reported net income can be presented in several ways (it is just an opinion) while equity cash flow or free cash flow is a fact: a unique number. There is a financial maxim which, although it is not completely true, may be convenient to remember: "net income is just an opinion, while cash flow is a fact."

 


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