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Net investment income is the profit earned from investment sources after losses have been subtracted. It can come from stocks, bonds, mutual funds or loans and is taxable. Companies also calculate net investment income, often per share, and can pass on profits to investors as dividends.
Net investment income is the total amount of profit earned from investment sources after all losses have been subtracted. For individuals, this total can come from mutual funds, stocks, bonds, or loans, and is taxable at a rate that depends on the source of the income. Companies also need to be concerned with net investment income, which, for businesses, refers to all investment income earned after expenses and losses are factored in. For companies, this amount is often calculated per share by dividing the amount of net income earned by the amount of shares outstanding in the company.
Investing generally involves many ups and downs on the way to profit. For example, a person may buy a stock that goes up and down in price many times during the time it is held. When all of the various investment gains and losses that have been accumulated are displayed together, you get a single figure that represents the amount of income earned from investment sources. This total is known as net investment income and is usually calculated over a year for tax purposes.
There are many different possible sources of investment income that can affect your overall net investment income. Stocks, bonds and mutual funds are three of the most common of these sources, but there are other income sources as well such as the interest earned on loans to other entities. The basic requirement for income to be considered investment income is that a person never actually works for this income, but rather earns it from some form of investment opportunity.
Financial firms also calculate their net investment income as a way to get that information to shareholders. Net income for companies is calculated much like it is for individuals, as losses and expenses are subtracted from the profits earned through investments. Companies with high net income earned through investments can pass those profits on to investors in the form of dividends.
In many cases, companies calculate net investment income on a per-share basis. This is achieved by dividing a single year’s net income by the number of shares currently owned by investors in a company. For example, imagine a company that earned $100,000 US dollars (USD) in investment income during the year and has 10,000 shares outstanding. Dividing $100,000 USD by 10,000 gives a total of $10 USD of investment income per share in the company.
Smart Asset.
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