Net Income
This article explains how Net Income works in Model Reef.
You will learn:
How Net Income is calculated from the P&L structure.
How Net Income flows into retained earnings on the Balance Sheet.
How it relates to cash generation and valuation.
Net Income is the bottom line earnings measure after interest and tax.
1. Net Income definition
It is calculated as:
EBITDA
minus Depreciation and Amortisation
= EBIT
minus Interest Expense
= EBT
minus Tax Expense
= Net Income (NPAT)All of these components are generated automatically from variables, categories and timing rules.
2. Net Income in the P&L
Net Income appears at the bottom of the P&L for each period.
You can view it:
For the consolidated model.
For individual branches and their children.
Across different scenarios.
In different period views such as monthly, quarterly or annual.
You can also use Net Income in custom charts and reports as a reference metric or comparison point.
3. Net Income and retained earnings
On the Balance Sheet:
Net Income increases Retained Earnings each period.
Dividends and other equity distributions decrease Retained Earnings.
The standard retained earnings movement is:
Model Reef maintains this link automatically. You do not need to post manual retained earnings journals.
4. Net Income versus cash
Net Income is an accrual-based measure. It does not show when cash is received or paid.
Differences arise due to:
Working capital movements such as changes in Accounts Receivable and Accounts Payable.
Timing of tax payments versus tax expense.
Capex and financing flows which are not expenses in the P&L.
To understand cash generation you should use Net Income together with:
The Cashflow Statement.
The Cash Waterfall.
Working capital analysis.
This combination explains why two businesses with similar Net Income can have very different cash outcomes.
5. Net Income in scenarios and valuation
In scenarios, Net Income helps you:
Compare profitability across Base, Downside and Upside cases.
Understand how leverage and tax changes affect earnings.
Check for sensible margins and growth patterns before focusing on cashflows.
In valuation, free cashflows come from adjusting earnings for non-cash items, working capital and capex, rather than from Net Income directly. However, Net Income remains an important sanity check and communication metric for stakeholders.
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