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Net investment income is the total amount of profit gained from investment sources after all losses are subtracted. For individuals, this total can come from mutual funds, stocks, bonds, or loans, and it is taxable at a rate that is dependent on the source of the income. Companies must also be concerned with net investment income, which, for businesses, refers to all investment income gained once expenses and losses are calculated. For companies, this amount is often calculated on a per share basis by dividing the amount of net income gained by the amount of shares outstanding in the company.
Investing generally entails many ups and downs on the way to profit. For instance, a person can buy a stock that rises and falls in price many times during the period of time that it is held. When all of the various investment gains and losses that have been accumulated are viewed together, it produces a single figure that represents the amount of income gained from investment sources. This total is known as the net investment income, and it is usually calculated over a year's time for tax purposes.
There are many different possible sources of investment income that can factor into the overall net investment income. Stocks, bonds, and mutual funds are three of the most common of these sources, but there are also other possibilities for income like interest gained 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 gains it from some form of investment opportunity.
Financial companies also calculate their net investment income as a way to bring that information to stockholders. The net income for companies is calculated in much the same way as it is for individuals, as losses and expenses are subtracted from profits gained through investments. Companies with a high net income gained through investment can pass those profits along to investors in the form of dividends.
In many cases, companies calculate their net investment income on a per share basis. This is done by dividing the net income for a single year by the number of shares that are currently owned by investors in a company. As an example, imagine a company that has earned $100,000 US Dollars (USD) in investment income throughout the year and has 10,000 outstanding shares. Dividing $100,000 USD by 10,000 yields a total of $10 USD investment income per share in the company.
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