A company’s net income is the profit it generates in an accounting period, and equals its revenues minus expenses. A company reports net income on its income statement and on its statement of owner’s equity, which shows the items and transactions that affect the change in owner's equity during an accounting period. Owner’s equity is the value of the owner’s stake in a sole proprietorship -- a business with one owner. A higher amount of net income increases your company’s owner’s equity, which increases the value of your company.
Find the “Net Income” line item in the first column of the statement of owner’s equity several lines from the top of the statement. If the company had a net loss for the period, which means it had more expenses than revenues, the line item will show “Net Loss” on the statement.
Identify the dollar amount listed on the same line as the net income or net loss description. A net income line item shows a positive dollar amount, while a net loss line item shows a negative dollar amount enclosed in parentheses. A net loss decreases owner’s equity. For example, if the statement of owner’s equity shows net income of $50,000, owner’s equity increases by $50,000.
Compare the amount of net income on the statement of owner’s equity over different accounting periods. An increasing amount of net income on the statement over time shows that your company is growing and generating more profit, while a decreasing amount or net loss shows that your company is contracting, which will decrease your company’s value. For example, if your net income increases from $50,000 one year to $75,000 the next, your profit and owner’s equity is increasing.
