Definition:
Book income is the net income of a company as reported on its financial statements. It is calculated by subtracting expenses from revenues. Book income is also known as accounting income or reported income.
Key points about book income:
- Financial statements: Book income is reported on the income statement.
- Taxable income: While book income and taxable income are often similar, they may differ due to certain accounting adjustments and tax provisions.
- Financial analysis: Book income is a key metric used in financial analysis to assess a company’s profitability.
- Dividend distributions: Book income can be used to determine the amount of dividends that a company can distribute to its shareholders.
Why is book income important?
- Financial performance: Book income is a key indicator of a company’s financial performance.
- Investor analysis: Investors use book income to evaluate the profitability of a company and make investment decisions.
- Dividend policy: Book income is a factor that is considered when determining a company’s dividend policy.
In essence, book income is the net income of a company as reported on its financial statements, and it’s a crucial metric for understanding a company’s financial performance.
