Write the difference between Net operating income and net income.

Banking & FinanceFinance ManagementGrowth & Empowerment

The major differences between net operating income and net income are as follows −

Net operating income

  • No relevance in capital structure.

  • Degree of leverage is irrelevant to cost of capital (assumes).

  • It has constant cost of capital.

  • Equity value is residual.

  • Changes perception of investor with increase in debt.

Net income

  • Relevance in capital structure.

  • Change in degree of leverage will change WACC (assumes).

  • No taxes.

  • Cost of debt is less than cost of equity.

  • Change in debt will not change perception of investors.

raja
Published on 28-Sep-2020 14:51:54
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