What is net income?
a) The total revenue generated by a company
b) The total expenses incurred by a company
c) The profit earned by a company after deducting all expenses and taxes
d) The total assets owned by a company
Answer: c) The profit earned by a company after deducting all expenses and taxes
Which of the following statements is true about net income?
a) Net income represents the total cash flow of a company.
b) Net income is calculated by subtracting expenses from revenue.
c) Net income includes non-operating income and expenses.
d) Net income is the same as gross profit.
Answer: b) Net income is calculated by subtracting expenses from revenue.
How is net income calculated?
a) Revenue minus taxes
b) Revenue minus expenses
c) Revenue plus expenses
d) Revenue divided by expenses
Answer: b) Revenue minus expenses
Which financial statement reports the net income of a company?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of retained earnings
Answer: a) Income statement
What does a positive net income indicate?
a) The company is in a loss
b) The company is generating profit
c) The company has high expenses
d) The company has low revenue
Answer: b) The company is generating profit
What does a negative net income indicate?
a) The company is in a loss
b) The company is generating profit
c) The company has high expenses
d) The company has low revenue
Answer: a) The company is in a loss
Which of the following factors can affect net income?
a) Increase in sales revenue
b) Decrease in operating expenses
c) Increase in taxes
d) All of the above
Answer: d) All of the above
True or False: Net income represents the amount of cash a company has on hand.
Answer: False. Net income represents the profit earned by a company, but it does not necessarily reflect the amount of cash available.
Which stakeholders are interested in a company’s net income?
a) Shareholders
b) Potential investors
c) Lenders
d) All of the above
Answer: d) All of the above
What is the purpose of calculating net income?
a) To assess the profitability of a company
b) To determine the company’s tax liability
c) To evaluate the performance of management
d) All of the above
Answer: d) All of the above
Which term is synonymous with net income?
a) Gross profit
b) Earnings before interest and taxes (EBIT)
c) Operating income
d) Net revenue
Answer: c) Operating income
How does net income differ from gross income?
a) Net income includes all expenses, while gross income does not.
b) Net income represents profit, while gross income represents total revenue.
c) Net income is reported on the income statement, while gross income is not.
d) Net income is calculated before taxes, while gross income is calculated after taxes.
Answer: a) Net income includes all expenses, while gross income does not.
What is the significance of net income in financial analysis?
a) It indicates the overall financial health of a company.
b) It helps investors assess the profitability of an investment.
c) It is used to calculate the earnings per share (EPS) of a company.
d) All of the above
Answer: d) All of the above
How can net income be influenced by non-operating activities?
a) Through the sale of long-term investments
b) Through the payment of dividends
c) Through gains or losses from currency exchange rates
d) All of the above
Answer: d) All of the above
True or False: Net income is the same as cash flow.
Answer: False. Net income and cash flow are different concepts. Net income represents profit, while cash flow represents the actual cash generated or used by a company.
What is the formula to calculate net income?
a) Net Income = Total Revenue – Total Expenses
b) Net Income = Gross Profit – Operating Expenses
c) Net Income = Revenue – Cost of Goods Sold
d) Net Income = EBIT – Taxes
Answer: a) Net Income = Total Revenue – Total Expenses
How does net income impact a company’s taxes?
a) Higher net income leads to higher tax payments.
b) Lower net income leads to lower tax payments.
c) Net income has no direct impact on taxes.
d) Taxes are calculated separately and are unrelated to net income.
Answer: a) Higher net income leads to higher tax payments.
What is the difference between net income and net profit margin?
a) Net income measures the overall profitability of a company, while net profit margin represents the percentage of net income relative to total revenue.
b) Net income represents profit, while net profit margin represents the operating income of a company.
c) Net income is reported on the balance sheet, while net profit margin is reported on the income statement.
d) Net income is calculated after taxes, while net profit margin is calculated before taxes.
Answer: a) Net income measures the overall profitability of a company, while net profit margin represents the percentage of net income relative to total revenue.
What is the role of net income in financial forecasting?
a) It helps predict future profitability and cash flow.
b) It assists in determining the company’s budget and expenditure plans.
c) It provides insights into potential dividend payments to shareholders.
d) All of the above
Answer: d) All of the above
How can a company increase its net income?
a) By increasing revenue through sales growth
b) By reducing operating expenses
c) By minimizing tax liabilities through legal tax strategies
d) All of the above
Answer: d) All of the above