More of this Feature • Introduction • Income Statement • Revenue / sales • Cost of Goods Sold • Gross profit • Gross margin • The first three lines • Operating Expenses • R&D Expense • SG&A Expense • Goodwill Charges • Extraordinary Events • Accounting for extraordinary events • Oper. income/margin • Interest income and expense • Interest coverage ratio • Depreciation expense • Accum. Depreciation • Straight-line Method • Accelerated and Sum of the Years' Digits Method • Dbl Declining Balance • Comparing Depr. Mths • EBITDA • Income taxes • Minority Interests - cost, equity, and consolidated methods • Unreported earnings • Continuing operations • Accounting changes • Preferred dividends • Net income applicable to common shares • Net profit margin • Basic vs. Diluted EPS • Hiding share dilution • Share repurchases • Return on Equity- ROE • Asset turnover • Return on Assets- ROA • Projecting earnings • Formulas & Calculations • Putting it together • Segment 2

Related Resources • Investing Lesson 1 • Investing Lesson 2 • Investing Lesson 3 • More Lessons

From Other Guides • Preferred Stock and Individual Investors • Participating Convertible Preferred Stock

Elsewhere on the Web • Preferred Stock Online • Preferred Stock Ownership • Preferred Stock for You? • What is Preferred Stock

Net Income
The net income is the total profit the business made for the period before required dividend payments on the company's preferred stock.

Preferred Stock and Other Adjustments
Preferred stock is a mix between regular common stock and a bond. Each share of preferred stock is normally paid a guaranteed, relatively high dividend and has first dibs over common stock at the company's assets in the event of bankruptcy. In exchange for the higher income and safety, preferred shareholders miss out on large potential capital gains [or losses]. Owners of preferred stock generally do not have voting privileges.

The terms of preferred shares can vary widely, even when issued by the same company. Some of the many different kinds of preferred stock available are: adjustable rate preferred stock, convertible preferred stock, first preferred stock, participating preferred stock, participating convertible preferred stock, prior preferred stock, and second preferred stock. [For more information, read the remainder of preferred stock article, The Many Flavors of Preferred Stock].

The dividends paid to preferred shares are deducted as an expense because they are required payments, unlike the common stock dividend which is just a divvying-up part of the profits.

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