Net Income After Taxes (NIAT)
What it is:
How it works/Example:
income statement, which is why it's often referred to as the bottom line. Let's look at a hypothetical income statement for Company XYZ:after taxes is found on the last line of the
Income Statement for Company XYZ, Inc.
for the year ended December 31, 2008
Total Revenue $100,000
Cost of Goods Sold ($ 20,000)
Gross Profit $ 80,000
Utilities $ 5,000
Depreciation $ 5,000
Total Operating Expenses ($ 30,000)
Interest Expense ($ 10,000)
Taxes ($ 10,000)
NIAT $ 30,000
By using the formula we can see that NIAT = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000
Why it matters:
ratio analysis and financial statement analysis. Shareholders look at NIAT closely because it is the source of compensation to shareholders of the company, and if a company cannot generate enough profit to compensate owners, the value of shares will plummet. Conversely, if a company is healthy and growing, higher stock prices will reflect the increased availability of profits.
One of the most important concepts to understand is that NIAT is not a measure of how much cash a company earned during a given period. This is because the income statement includes a lot of non-cash expenses such as depreciation and amortization. To learn about how much cash a company generates, you need to examine the cash flow statement.
Changes in NIAT are endlessly scrutinized. In general, when a company's NIAT is low or negative, a myriad of problems could be to blame, ranging from decreasing sales to poor customer experience to inadequate expense management.
NIAT varies greatly from company to company and from industry to industry. Because NIAT is measured in dollars and companies vary in size, it is often more appropriate to consider NIAT as a percentage of sales, known as "profit margin." Another common ratio is the price-to-earnings ratio (P/E), which tells investors how much they are paying (the stock's price) for each dollar of net profit the company is able to generate.
If you'd like to read more in-depth information about using NIAT and other income statement line items, check out the following:
-- learn about this all-important financial statement used to calculate profitability. definition
-- learn how definition is related to net profit.
-- learn how to calculate and use the P/E ratio, one of the most used ratios in definitioninvesting.