In an increasingly data-driven corporate environment, accurately analyzing a company’s financial performance requires much more than simply observing the bottom line of financial statements. Metrics such as adjusted net income are gaining ground in strategic analyses because they more clearly reveal an organization’s true operational capacity.
While net income remains an essential metric, particularly for meeting tax obligations and distributing dividends, it doesn’t always accurately reflect a company’s ongoing performance. After all, extraordinary factors—such as non-recurring events, exchange rate fluctuations, or legal provisions—can distort the actual operating result.
What is adjusted net income?
Adjusted net income is a financial metric that starts from traditional net income and promotes adjustments with the aim of eliminating distortions caused by items considered non-recurring or extraordinary.
This is a non-mandatory metric , that is, not provided for by international (IFRS) accounting standards, but widely used in management contexts, performance evaluation, presentation of results to investors and M&A processes.
Its main objective is to offer a cleaner and more recurring view of the company’s operating results, making it possible to compare different periods or evaluate management efficiency without interference from specific events.
Examples of common adjustments
Items that are typically excluded to arrive at adjusted net income include:
- atypical judicial provisions;
- corporate restructuring or mass layoffs;
- income or costs incurred when non-operating assets are sold;
- extreme exchange rate gains due to currency fluctuations;
- impairment of assets or exceptional accounting reversals.
These adjustments vary depending on the sector, the company’s current situation, and the internal criteria adopted — which requires transparency and methodological consistency in the disclosure of this information.
What is net profit?
Net profit is the last line of the Income Statement (IS) and represents the company’s final result after deducting all operating and financial expenses, taxes, provisions and other charges.
It is the official metric recognized by accounting standards, used to determine taxes, calculate dividends and prepare mandatory accounting reports.
Importance and limitations
Although it is an extremely important metric, net profit can be strongly influenced by non-recurring events , which compromises its usefulness for comparative analysis and performance projections.
Imagine, for example, a company that made a high profit in a given quarter due to the sale of a property. Net profit will increase, but this gain does not represent operational performance. Management that relies solely on this indicator risks making decisions that are misaligned with the business reality.
Differences between net income and adjusted net income
The main difference between these two metrics is the exclusion (or not) of extraordinary events . While net income strictly adheres to accounting standards, adjusted net income allows for the filtering of non-operating or non-recurring items , aiming to reveal the company’s sustainable performance.
Therefore, the construction of adjusted net income may vary from one company to another, although it must always be clearly justified in performance reports.
When to use each of them
As we’ve seen, there’s a difference between net income and adjusted net income. Let’s understand when to use each in reports and analyses.
Use net income when:
- it is necessary to comply with legal and tax obligations;
- need to calculate dividend distribution;
- prepare standardized accounting reports.
Use adjusted net income when:
- evaluate the company’s real and recurring performance;
- present results to boards, investors or market analysts;
- prepare merger, acquisition or valuation processes ;
- identify medium and long-term trends without specific noise.
- Other types of profit that influence financial analysis
In addition to net income and adjusted net income, it’s important to understand other performance metrics that help provide a complete picture of a company’s financial health .
1. GROSS PROFIT
This is the value obtained after subtracting the cost of goods sold (COGS) or cost of services provided (CSP) from net revenue . It reveals the margin generated from the business’s core operations, before considering administrative, commercial, and financial expenses.
Importance: assesses production efficiency and pricing strategy.
2. OPERATING PROFIT (EBIT)
EBIT is earnings before interest and taxes. It reflects a company’s operating results, disregarding its capital structure and the impact of taxes.
Importance: allows analyzing operational efficiency independently of external financial factors.
3. EBITDA
It’s one of the most widely used metrics for comparisons between companies and periods, precisely because it eliminates accounting variations that don’t directly affect cash flow.
Importance: serves as a basis for calculating multiples (e.g., EV/EBITDA ), valuation and is also a common starting point for calculating adjusted net income.
Why Adjusted Net Income Matters in Financial Management
In highly competitive contexts, adjusted net income is a strategic ally for financial managers , as it allows a more accurate assessment of the business’s real profitability, excluding accounting “noise” that distorts performance readings.
Furthermore, it contributes to the construction of more reliable performance indicators , such as adjusted net margin, adjusted ROE and return on invested capital on a recurring basis.
Strategic communication with stakeholders
Adjusted net income is widely used by publicly traded companies in their quarterly earnings releases , precisely because it communicates business efficiency more clearly , even at times when accounting profit is impacted by non-operational factors.
This practice is also common in companies undergoing IPOs, audits, or investment rounds, when transparency and predictability of results are crucial for third-party decision-making.
